Wal-Mart earnings: In-store and digital sales put it a step ahead of the competition

Wal-Mart Stores Inc. is expected to report third-quarter earnings Thursday before the opening bell, and analysts think the company’s efforts across both in-store and online sales are pushing it ahead of the competition. Cowen & Co. analysts say they favor Wal-Mart WMT, +0.08% over Target TGT,-1.63%, with its omnichannel capabilities giving the retail giant continued momentum. “In our view, the retailer is ahead of peers in terms of demonstrating aggressive and innovative strategies to leverage its store network (about 4,700), which we believe provides strategic advantages over both brick-and mortar and online competition,” analysts led by Oliver Chen wrote. See also: Target earnings: Analysts see growth potential, and growing Amazon overlap Online initiatives highlighted in a recent Cowen note include expansion of Wal-Mart’s curbside grocery pick-up service to 1,100 stores by the end of fiscal 2018, mobile app enhancements like Mobile Express Returns and its partnership with Alphabet Inc.’s GOOG,-0.23% GOOGL,-0.28% Google. Cowen analysts are also optimistic about Target’s potential, but say Wal-Mart’s traffic numbers will benefit from price investments and an easy same-store sales comparison. However, two concerns, according to the Cowen Consumer Tracker, are declines in customer satisfaction for two consecutive periods and growing overlap with Amazon.com Inc. AMZN, +0.34% Cowen rates Wal-Mart shares outperform with a $94 price target. Wal-Mart has an average overweight rating with an average price target of $88.24, according to 33 analysts polled by FactSet. See also: Wal-Mart hopes some higher online prices will drive traffic to stores Here are some things to watch for: Earnings: FactSet expects Wal-Mart to report earnings per share of 97 cents, down a penny year-over-year. Estimize, a software platform that crowdsources estimates from buy-side analysts, sell-side analysts, hedge-fund managers, academics and others, expects EPS of 99 cents. Revenue: FactSet expects revenue of $121.02 billion, up from $118.18 billion last year. Estimize forecasts sales of $121.46 billion. Stock reaction: Wal-Mart shares are up 13.8% for the past three months, and up 32.3% for the year so far. The S&P 500 index SPX, +0.10% is up 15.5% for 2017 so far, while the Dow Jones Industrial Average DJIA, +0.07% is up 18.5% for the period. And: Is Amazon getting into the pharmacy business? This is what you need to know What else to watch for: • UBS thinks Wal-Mart’s online component will get the lion’s share of the attention. Analysts think the company achieved 50%-plus growth in that area. “Online growth will be closely watched as it’s helped shift the narrative to Wal-Mart becoming a ‘viable number 2’ (ironic since its overall sales overshadow those of any other retailer),” wrote analysts led by Michael Lasser. “That said, it will soon lap the benefit from its $35 free ship threshold and in-store pickup discount.” Another possible challenge is maintaining its gross margins in the face of billions in price investments over the coming years. “We think it’s going to be tough,” analysts say. UBS rates Wal-Mart shares neutral with a $91 price target. Don’t miss: The future of grocery is all about data • “Clearly Wal-Mart’s several years of e-commerce initiatives are paying off,” wrote J.P. Morgan analysts, “but likely as the expense of medium-term profits.” J.P. Morgan analysts rate Wal-Mart shares neutral with an $84 price target. • Analysts at Susquehanna Financial Group forecast that Wal-Mart will ring up more than $23 billion in online sales in 2018, but thinks other retail players will pose a threat. Analysts also think the retailer, like Home Depot Inc. HD, +0.76%, could benefit from the hurricanes that struck the U.S. Read: Home Depot earnings: Hurricanes expected to give retailer an earnings boost “We continue to recommend Wal-Mart, as it has the potential to benefit from replacement sales due to the hurricanes and continues to be the most effective omnichannel retailer in our universe,” Susquehanna wrote. Susquehanna rates Wal-Mart shares positive with a $99 price target. Related Topics Earnings Markets U.S. Stocks