BofA points to crucial Walmart numbers most investors ignore

Walmart (WMT) reports earnings on Aug. 20, and most of the attention will land on one figure: how much its U.S. stores sold compared with a year ago.

That number matters. But Bank of America thinks investors who stop there are watching the wrong part of the business.

The firm reiterated a Buy rating on Walmart this week and kept its price target at $144, even as it trimmed its U.S. store sales growth forecast.

The reason is simple. Walmart has quietly built a set of newer, higher-profit businesses that now carry more weight in the earnings math than they did a year ago.

For investors deciding whether to buy before the report, the question is which numbers actually move the stock. Bank of America has a clear answer.

What Bank of America told Walmart investors before earnings

Bank of America analyst Christopher Nardone reiterated a Buy rating and a $144 price target on Walmart ahead of the second-quarter report, Benzinga reported.

That target sits about 25% above Walmart’s Aug. 12 close of $115.55, based on Nasdaq quote data.

The firm forecasts second-quarter adjusted earnings of 74 cents per share, up from 68 cents a year earlier.

Nardone made a specific case. Even if Walmart’s core U.S. store sales slow, the rest of the business is strong enough to let the company beat expectations and raise its outlook for the year.

That combination, a small beat paired with a raised forecast, is the pattern investors have rewarded in past quarters.

Walmart reports second-quarter results on Aug. 20, with advertising and marketplace growth in focus.

Michael M&period; Santiago / Getty Images

Why Walmart’s U.S. store sales may look softer this quarter

Walmart already told investors to expect slower growth this quarter.

The company’s management guided second-quarter net sales growth of 4% to 5% on a constant-currency basis, which removes the effects of exchange-rate fluctuations.

That is down about one percentage point from the 5.7% growth in the first quarter.

Bank of America expects growth near the middle of that range, at 4.6%.

The slowdown comes from three specific issues the firm named:

Tax refunds have run their course. The extra spending money shoppers had earlier in the year has faded.
General merchandise pricing is helping less than it did in recent quarters.
Lower-income shoppers are pulling back as budgets tighten.

Nardone pointed out what a weaker quarter would actually cost Walmart. If U.S. store sales come in half a point below expectations, the company’s full-year sales growth only drops by about a tenth of a point.

That’s a small hit. A soft quarter in the stores would not do much damage to the full-year outlook.

The advertising and marketplace numbers carry more weight

Here is where Bank of America says investors should focus.

Walmart now runs several fast-growing businesses that earn higher profit margins than its grocery and household goods business.

Walmart’s own first-quarter results back this up.

Global advertising revenue grew 36%, marketplace sales jumped nearly 50%, and membership fee revenue stayed strong, according to Bank of America’s note.

Advertising is the clearest example. Walmart sells ad space to the brands that already stock its shelves, and that revenue costs very little to produce, so most of it flows straight to profit.

Marketplace sales work the same way. Walmart lets outside sellers list products on its site and collects fees without holding the inventory itself.

Bank of America’s point is direct: These revenue streams can lift Walmart’s overall profitability, even if U.S. store sales growth stays in the 3% to 4% range.

That is why the firm can trim its store sales forecast and still maintain a Buy rating.

How Walmart’s price cuts set up second-half share gains

Walmart announced sharper price cuts on July 6, and Bank of America expects those moves to help the retailer win customers in the second half of the year.

Lower prices, a wider selection of products from marketplace sellers, and faster delivery give shoppers more reasons to choose Walmart over rivals.

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The firm noted an important detail for investors worried about profit. Walmart had already built these price cuts into its earlier guidance, so they should not create new pressure on margins this year.

There is a risk to watch for next year. Walmart benefited from tariff-related refunds this year, and once those benefits end, profit margins could get squeezed.

Bank of America says Walmart’s high-margin advertising business can help fund continued price cuts.

This gives the company room to stay aggressive on pricing without hurting profit as much as competitors would.

What Walmart shares have done heading into the report

Walmart’s stock has risen in the days leading up to earnings.

The shares closed at $115.55 on Aug. 12, up 2.02% on the day and up about 1.4% over the prior five trading sessions.

That climb from the low $110s into the mid-$110s suggests investors are positioning for a solid quarter rather than bracing for a miss.

Valuation raises the stakes, though. Walmart trades at roughly 40 times earnings, a rich price for a retailer, which leaves little room for error if results or guidance disappoint.

For context, that multiple is well above what most grocery and discount peers command, reflecting the market already paying up for Walmart’s newer, higher-profit businesses.

What still has to happen for the Buy case to work

An analyst target is a forecast, not a guarantee. Several things need to go right for Walmart to justify the $144 call.

Key checkpoints for Walmart investors before Aug. 20

Advertising and marketplace growth: The high-margin businesses need to keep posting the kind of double-digit gains seen in the first quarter.
A raised full-year outlook: Bank of America’s call depends on Walmart beating expectations and lifting guidance, not just clearing a low bar.
Stable margins: Investors want proof that the July price cuts are not eroding profits faster than the new revenue streams can offset.
Lower-income demand: Any further pullback by budget-conscious shoppers could pressure store sales beyond the firm’s expectations.

The risks are real. If advertising or marketplace growth slows down, the case for paying 40 times earnings weakens quickly.

A cautious outlook from management on Aug. 20 could also pressure the stock, even if the quarter itself looks fine.

The bottom line for Walmart shareholders

Bank of America is telling investors to judge Walmart on the parts of the business that earn the most profit, not only on how much its stores sold.

The firm expects second-quarter earnings of 74 cents per share, slower U.S. store sales, and continued strength in advertising, marketplace, and membership fees.

For current holders, the Aug. 20 report matters a lot. Walmart stock is expensive right now, and shares have already risen heading into earnings.

That combination means a disappointing report could hit the stock harder than usual.

For new buyers, Bank of America’s $144 target is about 25% above today’s price. But investors only get that gain if two things happen: Advertising and marketplace sales keep growing fast, and Walmart raises its forecast for the rest of the year.

The decision comes down to what you believe about Walmart’s newer businesses. If advertising and marketplace sales keep growing, the numbers most shoppers ignore are the ones that will decide the stock.