UBS: Here's what to expect for Walmart's analyst day
- Walmart is set to hold this year's investment community meeting on October 12.
- In a long-term bullish scenario, UBS analyst Michael Lasser estimates Walmart's stock price could rise 30% if the company can reach digital profitability and grab market share from Amazon.
- Walmart could be compelled to raise minimum wage in the wake of Amazon's wage hike announcement, Lasser said.
- Watch Walmart trade in real time here.
Walmart is set to hold this year's investment community meeting on October 12, and UBS analysts have published their thoughts on of the analyst day.
Earnings guidance:
"Overall, we're anticipating that Walmart will guide to 3% to 5% net sales growth and a flat to negative 2% earnings per share decline for Fiscal year of 2020," a group of UBS analysts led by Michael Lasser said in a note sent out to clients on Monday.
Lasser added that a possible slowdown in the macro environment, which could stem from factors such as China tariffs and rising interest rates, may weigh on the company's top line growth. Lasser has a "neutral" rating and $102 price target for Walmart - 8% above where shares are currently trading - and sees its risk and reward as balanced.
Flipkart acquisition:
On August 18, Walmart closed on its acquisition of 77% of Flipkart, India's largest e-commerce platform. Walmart said the buyout could dilute earnings per share by $0.25-$0.30 for fiscal year of 2019, and reduce 2020 EPS by $0.60.
UBS analysts led by Lasser are expecting a headwind to EPS to be $0.25 in fiscal year of 2019, and $0.58 in fiscal year of 2020. Meanwhile, by their calculation, the acquisition will add $3.2 billion in sales in fiscal year of 2019, followed by $10.4 billion in sales in fiscal year of 2020.
Walmart e-commerce growth:
"We think the most likely scenario is that it guides to around 30% digital sales growth." Lasser said. "This would represent a slowdown from fiscal year 2019's 40% targeted rate, but would equate to an acceleration on a dollar growth basis."
Lasser added that Walmart US will continue to lean into grocery pickup expansion and will likely offer third-party grocery delivery from more locations. Therefore, in a long-term bullish scenario, Lasser estimates Walmart stock price to rise to $120 to $125 if the company can reach digital profitability and grab market shares from Amazon.
Potential wage hike:
Amazon announced last week that it will raise minimum wage for US employees to $15 per hour starting on November 1.
Amazon's wage hike could placate political pressure about its labor practices and simultaneously turn unwanted political attention to other major US retailers, which tend to pay less, Jefferies analyst Brent Thill recently said in a note sent out to clients.
And Lasser agrees that Amazon's wage hike could add pressure to retail competitors such as Walmart to also raise their wages.
"While Walmart announced it was hiking its own starting pay to $11 an hour earlier this year, we think there's a chance it could be compelled to further take up its starting pay in the wake of this (Amazon's) announcement," said Lasser.
Amazon shares are down 4% this year.
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