Post-Earnings Dip on Walmart Looks Appealing

Walmart NYSE: WMT reported its Q4 2021 earnings (the period ending December 31, 2020) and investors did not like the results; shares cratered by more than 6% on the news. That’s a big move for any company, but we’re not talking about some volatile tech stock here – Walmart is a low-beta stock – so this is something to pay attention to.

The numbers weren’t good by any stretch of the imagination, but Walmart’s long-term potential remains intact. Selling shares now is missing the forest for the trees. Instead, the dip should be looked at as a buying opportunity.

Fourth Quarter Was a Mixed Bag

Walmart reported revenue of $152.08 billion in Q4 2021, which was up from $141.67 billion in the same period a year ago and beat consensus estimates for $148.51 billion. US comp sales increased 8.6%, well above estimates for 5.6%. But adjusted EPS of $1.39 fell short of estimates for $1.51.

The revenue outlook for fiscal 2022 left something to be desired at first glance: Walmart expects total company sales to decline. But that’s primarily due to divestitures of businesses in the UK, Japan, and Argentina. If you strip those out, Walmart expects total company sales to go up by “low-single-digits.” That’s nothing to write home about, but any type of growth in fiscal 2022 is impressive with Walmart facing tough comps from fiscal 2021; Walmart grew sales by nearly 7% in fiscal 2021 due in large part to COVID-19.

As for fiscal 2022 earnings, management said, “Excluding the impact of divestitures, we would expect operating income and EPS to be flat to up slightly versus a very strong profit year in FY '21.” Again, investors might have been expecting more, but this isn’t bad at all.

Walmart is Making Strides with E-Commerce

On the Q4 call, management said, “We expect our e-commerce sales globally to be over $100 billion in the next couple of years.” In Q4, e-commerce sales increased by 79% yoy in the US and by 60% yoy outside the US.

You might be shrugging your shoulders at those numbers. A lot of companies have been posting big e-commerce growth over the past year. What makes Walmart special?

Two things:

1. Walmart makes tens of billions of dollars in e-commerce sales. It is much easier to grow e-commerce sales from, say, $50 million to $75 million than from $50 billion to $75 billion. Both scenarios, however, would equate to the same 50% growth.
2. Walmart increased its overall sales. There are countless companies that have bragged about their e-commerce sales growing by a triple-digit rate, while their overall sales plummeted by a third. Congratulations?

 Walmart is competing directly with Amazon NASDAQ: AMZN, which, depending on how you look at it, is either terrifying or encouraging. It’s unlikely that Walmart is going to overtake Amazon, but closing the gap a bit would be a game-changer.

There’s evidence that Walmart is up to the task; the company struck a partnership with FedEx NYSE: FDX to streamline the returns process. Returns can be one of the most annoying parts of online shopping, so this move shouldn’t be overlooked.

Put a Crown on Walmart’s Head?

Walmart also announced that it is increasing its quarterly dividend by one penny to 55 cents per share. This marks the 48^th consecutive year that Walmart has raised its dividend, which means the company is two years away from joining the Dividend Kings.

The yield isn’t going to make you rich, but it’s solid in our current low-yield environment. Most importantly, it’s clear that Walmart is committed to increasing the dividend, so the payout could be a lot higher in 5+ years.

How Should You Play Walmart?

Walmart is trading at just over 25x forward earnings, which is reasonable for a company that could see modest top and bottom-line growth for many years to come.

Now maybe a good time to pick up some shares. The post-earnings dip has taken WMT near the 200-day moving average – typically a place where stocks get long-term support.