WMT Stock – Why the Time Has Come to Buy Walmart

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Walmart (WMT) has blamed everything except disgraced Los Angeles Clippers owner Donald Sterling for its lackluster performance for the past few quarters.

Wall Street, to its credit, has grown tired of the excuses — and that’s what makes tomorrow’s Walmart earnings report so important for WMT stock holders.

Walmart reports earnings before the bell Thursday.

With the headline unemployment rate down to 6.3% and U.S. consumer confidence at pre-economic crisis levels, Walmart theoretically should be able to crush Wall Street expectations which are for profit of $1.15 per share on revenue of $116.3 billion — thin increases on both fronts — when it reports earnings Thursday morning.

That’s the bull’s theory regarding Walmart earnings, anyway.

Whether new CEO Doug McMillon can deliver the better financial performance that WMT stock holders are demanding remains to be seen.

WMT Stock: The Least Ugly Big Retailer Right Now

Walmart is a master at shooting itself in the foot.  WMT has dogged by criticism of its poor customer service for years. Even the worse, many Walmart stores reportedly don’t have enough customers to keep their shelves stocked.

And seemingly to reflect that, Walmart’s sales have stagnated for some time. For example, on a same-store basis, U.S. Walmart stores eked out a 0.4% gain during the fourth quarter.

Fortunately for Walmart, primary rival Target (TGT) can’t exactly capitalize on these blunders right now because it has plenty of problems of its own — namely, the massive data breach that hit millions of consumers. Meanwhile, same-store sales at Target slumped 2.5% in the latest quarter, and Target’s botched expansion into Canada is weighing heavily on the company.

CEO Gregg Steinhafel was subsequently sent to the exit, and his abrupt resignation has left a leadership vacuum that needs to be filled.

Amazon.com (AMZN), meanwhile, is steamrolling both companies. The e-commerce giant’s revenues surged a whopping 23% in the latest quarter, further evidence that sacrificing margins for sales growth will usually pay off. Still, AMZN shares have been pounded this year amid concerns about its long-term profitability. AMZN is down some 20%-plus year-to-date. And Target is off about 6%, for that matter.

And Walmart?

Well … for as lackluster as things have been, WMT stock is little changed in 2014. And considering how little is expected out of Walmart, it actually offers a compelling value right now.

The Bright Side of Walmart

Walmart faces plenty off headwinds such as rising minimum wages and accusations of bribery in foreign countries. However, the company has made some smart moves that will pay off in the long run, such as expanding its foothold in financial services by offering money transfers. Teaming up with Wild Oats to offer lower-cost organic food might help attract more health-conscious consumers. And smaller store formats being championed by McMillon might help entice consumers who don’t enjoy shopping in cavernous big-box stores.

WMT stock currently trades at 13 times next year’s earnings, which are expected to grow by hihg single digits. Meanwhile, Walmart also pays a decent — not outstanding, but decent — dividend that currently yields around 2.4%.

Walmart will never be confused for a growth stock even under the best of circumstances. The company is trading at about a 2% discount to its average 52-week price target of $81 … but once WMT begins to show some progress in performance, those price targets will start ratcheting upward.

Now is the time to buy. WMT stock might not stay this fairly valued for long.

As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.