Deutsche Bank’s Top Pick for Upcoming Big Retail Earnings: Walmart

Walmart is predicted to be a winner as retailers announce their earnings next week, according to Deutsche Bank. Analyst Krisztina Katai stated that Walmart is her top pick due to “sales momentum and ability to start growing EBIT margin through a multi-year time frame.” Both Walmart and Sam’s Club are expected to experience upside. Katai raised her estimate on Walmart’s same-store sales to a 6% gain, and Sam’s Club to an 8.5% increase. Walmart is also among the companies “well positioned to take advantage of value seeking consumers and need-based purchases,” as consumer spending drops, as per recent data from Bank of America that showed credit card spending for April had dropped 1.2% from the prior year.

Walmart is set to announce fiscal first-quarter results before the bell on Thursday, along with Target and TJX Companies, who’s earnings are also on the calendar for next week. Katai believes the company may move earnings-per-share estimates up to be more in-line with the consensus range of $6.05-$6.15, as inventories are in good shape and there have been relatively in line promotions across peers. Food inflation also appears to be steadily passed through.

This week, Walmart was also named as one of the best ways to play the softening of consumer spending, as per a note from Katai. While the retailer generally doesn’t change its full-year forecast until the second quarter, it will most likely take advantage of its position to take advantage of value-seeking consumers. Walmart has exhibited strong year-to-date performance, with an increase in same-store sales and revenue.

Katai stated that Target is “likely to turn in a solid quarter and raise earnings guidance”, especially due to their ongoing brand partnerships. TJX Companies is also lined up to announce results, with expectations that they will beat consensus estimates. Other retailers to watch out for next week include Home Depot and Macy’s. Home Depot, performing well due to the pandemic, is also predicted to have sales growth. Macy’s is expected to report a swing to a profit for the quarter, ending up from a loss the prior year, with potential upside surprise guidance for the year as well.

All retailers on the calendar have had a positive run in the past year and are expected to have solid results. Nonetheless, Walmart stands out, thanks to its position in-store, online, and drive-thru pickup. According to Deutsche Bank, Walmart’s investment in technology has spurred sales during the pandemic, and its transformation to a multi-channel retailer has made it the top pick this earnings season.