Walmart (NYSE:) is currently trading at an all-time high, but the volume of trading has been below average during the breakout. This could be due to investors flocking to consumer staples like Walmart during the sideways market for the past two months. However, it’s worth noting that consumer staples were actually trading weaker when Walmart surpassed $160 – $162.
Costco (NASDAQ:) is set to report their fiscal Q4 ’23 in about 10 days, so let’s compare their revenue estimates to those of Walmart:
Walmart:
- Fiscal ’24 (ends Jan ’24): Walmart’s revenue estimate for fiscal ’24 has increased by 3% since December 31, 2022, from $623.6 billion to $642 billion as of September 15, 2023;
- Fiscal ’25 (ends Jan ’25): Walmart’s revenue estimate for fiscal ’25 has increased by 3.3% since December 31, 2022, from $643.1 billion to $664.8 billion as of September 15, 2023;
Walmart has seen a 2% cut in EPS estimates for fiscal year ’24 and a 1.5% cut for fiscal year ’25, since December 31, 2022.
Costco:
- For fiscal ’23 (ends Aug ’23), Costco’s revenue estimate has been revised down by 1.1% from $243.5 billion as of December 31, 2022, to $240.7 billion as of September 15, 2023;
- For fiscal ’24 (ends Aug ’24), Costco’s revenue estimate has been revised down by 1.7% from $257.99 billion as of December 31, 2022, to $253.6 billion as of September 15, 2023;
Costco’s full-year EPS estimates have slipped by 3% for fiscal ’23 and 2% for fiscal ’24.
When comparing Costco to Walmart, it’s important to note that Costco provides a breakdown of its product line, revealing that “Food & Sundries” and “Fresh Foods” account for approximately 50% of its total revenue. However, the exact amount of grocery sales within that is not clearly disclosed. On the other hand, analysts estimate that Walmart’s grocery segment represents anywhere from 50% to 70% of its total revenue.
Based on this information, it can be inferred that Walmart’s grocery business is larger as a percentage of their overall revenue compared to Costco’s grocery line.
The key takeaway here is that positive revenue revisions are a significant positive for the world’s largest retailer, and Walmart’s revenue estimates have been consistently revised upwards.
For Costco, the 1% – 2.5% downward trend in revenue estimates over the past 9 – 10 months is not a major concern, but it’s worth noting.
Between positive EPS revisions and positive revenue revisions, positive revenue revisions are preferred for retail, accounting for 99% of the preference.
Walmart has faced pressure on its operating margin for the past 20 years due to competition from Amazon and its expansion into the grocery business in 2000. However, the everyday low price (EDLP) leader is starting to fight back. Costco has performed better as a stock and is generally regarded as the superior retailer (or wholesale club) for various reasons which require further discussion.
S&P 500 Data:
- The forward 4-quarter estimate (FFQE) has increased by one penny this week to $233.39, compared to last week’s $233.38;
- The PE ratio on the forward estimate is 19x;
- The S&P 500 earnings yield (EY) ended the week at 5.24%, which is towards the higher end of the range over the past 10 – 11 weeks, but still below the level where investors would consider making significant investments;
- The Q2 ’23 S&P 500 bottom-up EPS estimate remains unchanged this week at $54.49, up from $52.91 on June 30, 2023;
- The EPS and revenue “upside surprises” for the quarter remain unchanged at +7.9% for S&P 500 EPS and +1.7% for S&P 500 EPS revenue;
Expected S&P 500 EPS / Revenue Growth Rates by Quarter:
I thought it would be interesting to share this table showing the expected EPS and revenue growth rates by quarter up until Q1 ’24.
If Q4 ’23 achieves an expected EPS growth rate of 11%, it would be a new high print.
Starting from Q3 ’23, the S&P 500 is facing weaker comparisons from the previous year: the S&P 500’s EPS and revenue estimates started to decline in Q3 and Q4 of 2022.
Summary
Next week, we’ll receive August housing data including housing starts and building permits, but a significant report (for this blog at least) will be FedEx’s (NYSE:) Q1 ’24 financial results, which are set to be released after the FOMC meeting announcement on Wednesday, September 20th.
FedEx has a global transportation footprint, and its new CEO Raj Subramaniam is consolidating some of the company’s segments in order to drive operating margin growth. Historically, whenever FDX’s operating margin reached 10%, it was a good time to sell the stock. Raj is still aiming for a 10% operating margin, but if costs can be reduced in the Express segment, FDX can eventually achieve “better than 10% operating margins.”
With the final two weeks of the quarter approaching, there might not be a typical weekly S&P 500 earnings update as other topics are worth discussing. However, the weekly updates will resume after October 1, 2023.
I’m working on including more individual stock analysis in future blog posts to make them more interesting for readers.
Keep in mind that this represents one person’s opinion, so approach it with skepticism. All S&P 500 EPS and revenue data is sourced from IBES data by Refinitiv, unless otherwise noted. Past performance does not guarantee future results, and this information should not be considered as advice. Some or all of this data may not be updated in a timely manner. The capital markets can change rapidly, both positively and negatively. Evaluate your own risk tolerance and adjust your portfolio accordingly.
Thank you for reading.
