Walmart Inc. (NYSE: WMT) is set to release its fiscal second-quarter earnings before the market opens on August 20. The retail giant is expected to post earnings per share of $0.73 on revenue of approximately $185 billion, which would represent year-over-year top-line growth of more than 5%.
Heading into the report, Walmart shares are trading near the same level they started the year, reflecting a period of consolidation. However, the stock's valuation has become a focal point for investors and analysts alike.
Valuation overhang persists
Keith Buchanan, portfolio manager at Globalt Investments, told CNBC that he has been "impressed with Walmart's execution" in recent years, particularly its ability to drive traffic even as consumers trade down. Despite this operational strength, Buchanan flagged WMT shares as a "valuation concern" ahead of the earnings event.
At current levels, Walmart trades at a forward price-to-earnings (P/E) ratio of nearly 40x. That premium is not only higher than its retail peers but also exceeds many high-growth technology names. For context, Nvidia, a leader in AI chips, trades at roughly 25x forward earnings.
This rich valuation could make it more difficult for Walmart to rally after its earnings report, even if results meet or slightly beat expectations.
Options market signals caution
The derivatives market appears to align with Buchanan's cautious stance. Data from Barchart shows a put-to-call ratio of 2.53 on option contracts expiring at the end of this week, indicating a strongly bearish skew. The lower strike price on those contracts is set at $112, implying a potential decline of more than 4% in Walmart's stock immediately following the earnings release.
Technically, Walmart shares remain below their 100-day and 200-day moving averages, suggesting that the broader downtrend is still intact. This technical weakness, combined with bearish options positioning, adds to the uncertainty surrounding the stock.
What to watch in the report
Tomorrow's earnings will serve as a litmus test for whether Walmart's fundamental strength can justify its premium valuation. To break out of its multi-month slump, the company will need to demonstrate robust margin expansion, sustained market-share gains, and accelerated growth in high-margin areas such as advertising and e-commerce.
Conversely, even a modest miss on revenue or cautious guidance for the second half could trigger a sharp recalibration in the share price, given the elevated expectations already priced in.
Despite the near-term concerns, Wall Street remains optimistic. The consensus rating on Walmart stock is Strong Buy, with a mean price target of about $140, implying potential upside of more than 20% over the next 12 months.
Investors may also be watching broader retail trends and how they compare to other companies. For instance, Klarna's recent rebound and the S&P 500's record high amid strong earnings suggest a mixed backdrop for consumer-focused names.
As Walmart navigates this high-stakes earnings event, the outcome will likely have implications not only for its own stock but also for the broader retail sector. The company's ability to balance growth investments with margin discipline will be closely scrutinized by investors.
This article is for informational purposes only and does not constitute financial advice.
