As the market has seen the rise of the Magnificent Seven tech stocks over the past year, it is no surprise that the largest retailer in the world, Walmart, is also expected to deliver impressive results in its upcoming earnings report on Feb. 20. This report will kick off the earnings season for the crucial holiday quarter.

Despite the burden of inflation on many Americans, robust spending data from the end of last year indicates that consumers were not hesitant to play Santa. Analysts are optimistic about Walmart's prospects for this quarter.

According to consensus estimates, Walmart is projected to earn $1.64 per share on revenue of $170.47 billion, with same-store sales expected to rise by 3%. However, Citi analyst Paul Lejuez has a bullish outlook and expects Walmart to surpass these expectations both in terms of top-line and bottom-line results. Lejuez, who has a Buy rating and a $190 price target, believes that Walmart's management will provide conservative guidance for 2024 as a whole due to ongoing uncertainty surrounding gross margins. He predicts that the company will target earnings per share between $6.80 and $7, slightly lower than the average analyst price target of $7.06.

Lejuez views any potential sell-off resulting from a more tempered outlook as a buying opportunity, as he anticipates that Walmart will ultimately exceed the projected earnings per share figure. This was evident in the market's reaction after the third-quarter results when the shares initially sold off but later resumed rallying. Lejuez's full-year earnings per share estimate for Walmart stands at $7.40.

Gross margins will undoubtedly be a key area of focus not only for Walmart but also for other retailers. The prices of goods have substantially increased compared to just a few years ago, leading consumers to allocate more of their budget towards essential items like groceries, which typically have lower profit margins, rather than discretionary items such as home goods and apparel.

Therefore, a cooling inflation rate is beneficial for retailers as it allows customers to have more disposable income to spend on higher-margin indulgences. However, it is a double-edged sword for retailers since prices that remain stable or slightly decrease can pose challenges to overall sales.

In the upcoming earnings report, Walmart's performance and guidance for 2024 will offer valuable insights into the retail industry as a whole. With its robust track record and potential for exceeding expectations, Walmart continues to be a significant player in the market.

Walmart's Strong Performance Predicted This Earnings Season

TD Cowen's Oliver Chen has shown a preference for Walmart over retail rival Target this earnings season. With groceries, health products, and other essentials accounting for approximately 70% of Walmart's sales (compared to only half of Target's), Chen expects Walmart to achieve impressive comparable sales. According to Cowen's data, store traffic at Walmart rose by 4.5% in the fourth quarter, far surpassing Target's meager 0.3% increase.

Investors are also eagerly anticipating updates on Walmart's other ventures, including its international investments and technological advancements. Oppenheimer analyst Rupesh Parikh emphasizes the significance of these factors and has raised his price target to $185. He suggests that potential disappointment regarding the company's full-year forecast could present an opportunity for investors to purchase shares at a favorable price. Parikh remains optimistic about Walmart's future performance, stating that he believes the company is still in the early to middle stages of its success story and could continue to outperform over the next 12 to 18 months.

Parikh highlights the momentum of Walmart's stock, which has already gained 7.5% year-to-date, outperforming the S&P 500. He also mentions that historically, Walmart's shares have performed well during election years, suggesting that this pattern could repeat as voters elect a new president in November.

Furthermore, Parikh speculates that Walmart management might consider launching an initial public offering (IPO) for one of its Indian businesses, such as PhonePe or Flipkart. Such a move would likely unlock additional shareholder value.

Since July, when it was recommended by _, Walmart's stock has risen by an impressive 10.5%. The company continues to exhibit favorable qualities, including improved efficiency through automation, increased appeal among higher-income consumers, and continued growth in non-core segments like advertising.

Overall, a strong fiscal fourth quarter and positive forecast would be an ideal conclusion to Walmart's successful year. However, even if expectations are not met, the stock is likely to rebound quickly.

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