While the Fed hinted at slowing the pace of interest rate hikes after increasing rates by another 75 basis points today, the market is expected to remain under pressure as a soft landing still looks impossible. However, this bear market also presents the perfect opportunity for bargain hunters to increase stakes in resilient businesses Walmart (WMT) and Gartner (IT) available at attractive valuations before Wall Street realizes their rebound potential. Read on….
As widely expected, the Fed has raised interest rates by 75 basis points for the fourth consecutive time today. While the central bank intends to reduce the pace in the future, the market volatility is not expected to ease anytime soon, with recession worries remaining intense.
While institutional fund managers on Wall Street sell their stocks and run for the hills to protect their market gains, bargain hunters may consider this golden opportunity to scoop up quality stocks available at discounted valuations.
Walmart Inc. (WMT)
As a world-renowned big box retailer, WMT offers opportunities to shop an assortment of merchandise and services at everyday low prices (EDLP) in retail stores and through e-commerce platforms. The company operates through three segments: Walmart U.S.; Walmart International; and Sam’s Club.
On October 27, 2022, WMT and Netflix (NFLX) announced an in-store expansion of the popular Netflix Hub in more than 2,400 stores. It would offer customers a brand-new streaming gift card, fan-favorite exclusives, and more.
On October 26, WMT announced the completion of the renovations made to the retrofitted regional distribution center in Texas, transforming it into a high-tech automation center. This investment is set to modernize Walmart’s vast supply chain network.
Also, on October 26, WMT and ANGI HomeServices Inc. (ANGI) announced the launch of a new product integration where customers who purchase nearly any Christmas lighting from Walmart can easily add installation by a pro on Angi. Since this bundling would provide additional value to customers, it is expected to impact the topline for both companies positively.
For the second quarter of the fiscal year 2023 ended July 2022, WMT’s total revenues increased 8.4% year-over-year to $152.86 billion. The company’s consolidated net income attributable to WMT increased 20.4% from the prior-year period to $5.15 billion, up 23.7% year-over-year. WMT’s total assets stood at $247.20 billion as of July 31, 2022, compared to $238.55 billion a year ago.
In terms of forward EV/Sales, WMT is currently trading at 0.75x, 57.3% lower than the industry average of 1.75x. Also, its forward Price/Sales multiple of 0.65 compares to the industry average of 1.24.
WMT’s revenue and EPS for the fiscal year ending January 2024 are expected to increase 3.1% and 12.8% year-over-year to $613.68 billion and $6.60, respectively. The company has an impressive earnings surprise history since it surpassed consensus EPS estimates in three of the trailing four quarters.
The stock has gained 8.7% over the past month to close the last trading session at $141.69.
WMT’s POWR Ratings reflect solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
WMT has grade B for Growth, Stability, Sentiment, and Quality. It is ranked #5 of 38 stocks within the A-rated Grocery/Big Box Retailers industry
Click here to see the additional POWR Ratings of WMT for Value and Momentum.
Gartner, Inc. (IT)
IT operates as a global research and advisory company. The company operates through three segments: Research; Conferences; and Consulting. It also provides solutions for various IT-related priorities, including IT cost optimization, digital transformation, and IT sourcing optimization.
For the third quarter of the fiscal year 2022 ended September 30, IT’s revenues increased 15.2% year-over-year to $1.33 billion. During the same period, the company’s adjusted EBITDA increased 8.9% year-over-year to $332 million, while the adjusted net income increased 12.2% year-over-year to $193 million. The company’s adjusted EPS came in at $2.41, up 18.7% year-over-year.
In terms of forward P/E, IT is currently trading at 33.07x, 11.6% lower than its 5-year average of 37.40x. The stock’s forward EV/EBITDA multiple of 21.29 is 1.6% below its 5-year average of 21.64. Also, its forward Price/Sales multiple of 4.44 compares with its 5-year average of 3.59.
Analysts expect IT’s revenue for the fiscal year 2022 to increase 13.9% year-over-year to $5.39 billion. The company’s EPS for the current year is expected to increase 3.1% year-over-year to $9.50. The company has topped the consensus EPS estimates in each of the trailing four quarters, extending its impressive earnings surprise history.
Over the past month, the stock has gained 16.5% to close the last trading session at $325.
IT’s strong fundamentals, and steady growth prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. It has an A grade for Quality.
It is ranked #4 of 10 stocks in the A-rated Outsourcing – Tech Services industry.
We have also given IT grades for Growth, Value, Momentum, Stability, and Sentiment. Get all IT ratings here.
WMT shares were trading at $140.84 per share on Wednesday afternoon, down $0.85 (-0.60%). Year-to-date, WMT has declined -1.50%, versus a -19.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master’s degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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