As noted by Barron’s retail giants Home Depot (HD) and Walmart (WMT) will report quarterly results this week. Both companies are considered to be conditional winners in the retail trade segment in the context of pandemic COVID-19. This means that the shares of these retailers may be under pressure if the results do not justify extremely high expectations of investors.
The shares of Home Depot (HD) since the beginning of the year rose more than 13% and traded with a multiplier of» price/earnings for 2021» at level 22. Shares of Walmart (WMT) rose more than 7% YTD and traded with a multiplier of «price/earnings for 2021» at the level OF 23. For comparison, the S&P 500 dropped more than 8% YTD and is trading with a multiplier of «price/earnings for 2021» above 22X.
Retailers, selling food, cleaning supplies and personal protective equipment, of course, felt much better than the retailers that sell the goods not the first necessity. For example, shares of Macy's (M) since the beginning of the year fell by around 70%. Moreover, they trade with a multiplier of «price/earnings for 2021» about 4.
For Home Depot «stability is very logical», — said an analyst with Barclay’s Karen Short (Karen Short) in its report, published last Wednesday. «We believe that the sales force sustainable for a number of reasons». One of these reasons is that when appliances and devices are not used for a long time, they tend to break. Short assumes that the company will replace or repair broken equipment as the recovery of the economy.
Karen Short recommends to buy the stock HD, the target value of which she estimates at $235/share. It predicts that by the end of the last quarter the company reported sales of $26.8 billion Is slightly below the consensus estimates on wall street of $27.5 billion, the Difference underscores the risk to the stock — market expectations are very high.
Shares of Walmart are faced with the same problem. «Despite the prospects of growth in food sales, we downgrade our profit estimates for 2021] given the prospects of weaker sales of commodities», — said BMO analyst Kelly Bania (Bania Kelly) in its report last Wednesday.
In fact, over the last few weeks, the Walmart profit estimate for the year for wall street fell by about $5 per share. It seems that COVID-19 has no positive impact on the profit of Walmart.
In addition, the growth of the sales network of retailers show a decrease. «Trends slowed in may for discount stores/club stores-stocks», — wrote Gordon Haskett analyst Chuck Grom (Chuck Grom) in its report last week. «But only compared to the excessive growth in April».
In spite of warnings by analysts Bath and the Thunder recommended buying shares of Walmart, the fair value of which they are both estimated at $140/share.
Walmart's Shares are popular on wall street. More than 70% of analysts covering the company recommend buying them.
Analysts expect Walmart will report on sales of $131 billion by the end of the last quarter, which is 5.6% more than in the same period of the previous year. At the same time, sales of Home Depot, is expected to grow by about 4.2%.
Sales growth — is one of the key indicators you want to monitor, when report of the company. This will help to determine how the will behave actions of these two giants of the retail trade, as well as shares of other retailers in the coming weeks.
At the moment, shares of HD are listed at $248.29 (+3.74%), and WMT share — for $127.47 (+1.21%).
Information-analytical Department TeleTrade