Walmart (WMT) is less likely for an outperformance in the short term due to pharmacy-related headwinds in its US business and other factors, Oppenheimer said Tuesday.
The brokerage now expects the retail giant to log US comparable sales growth excluding fuel of 3% in its fiscal second quarter, up from its prior forecast for a 2.9% rise. Wall Street is looking for a 3.8% increase, according to Oppenheimer.
Top-line pharmacy headwinds in the US business could lead to a shortfall versus the market's projections in the second quarter and later in the year mainly due to the Inflation Reduction Act, Oppenheimer analysts, including Rupesh Parikh, said in a note to clients.
"Although investors in our conversations lately expect a potential Walmart US comp shortfall (versus) Street forecasts, we still believe shares could move lower on the print given a still peakish valuation and the potential for pharmacy headwinds to persist at least through (the fourth quarter)," the analysts said.
The brokerage downgraded its rating on the company's stock to perform from outperform and removed its $140 price target.
Walmart shares were down 0.5% in afternoon trade, bringing its year-to-date losses to 1.2%.
Pharmacy dynamics remain fluid and could represent both upside and downside to comparable sales forecasts, although Oppenheimer doesn't expect slower pharmacy growth related to the IRA to negatively impact Walmart's earnings, according to the note.
There is less upside potential for the company to beat Street forecasts that are "well ahead" of long-term guidance. Walmart's valuation also remains at "peakish" levels across all metrics, making it susceptible to a lower re-rating if US comparable sales growth decelerates from a 4% increase to the 2.5%- to-3.5% range, the brokerage said.
Oppenheimer continues to have a favorable view on the retail giant's long-term prospects and management team. "We believe the company's longer-term algorithm is still realistic and remain confident in management's efforts under President and CEO John Furner to drive share gains over time," the analysts said.
Walmart is scheduled to release second-quarter financial results Aug. 20.
Price: $110.09, Change: $-0.62, Percent Change: -0.56%
