These Two Wal-Mart Analysts Are Not Impressed By Q3 Improvements

Wal-Mart’s stock is up over 1.1 percent in Wednesday’s session after the company reported a Q3 earnings beat on Tuesday. However, with the stock down more than 29 percent so far in 2015, shareholders are looking for a bit more than a modest earnings beat. Here’s a look at what Deutsche Bank and Barclays had to say about Wal-Mart’s earnings and what shareholders can expect in coming quarters.

The Numbers

Wal-Mart reported Q3 earnings of $1.03/share, slightly above consensus expectations of $0.98. However, earnings fell short of Q3 2014’s EPS of $1.15.

Related Link: Wal-Mart Q3 Profit Beats Views, Shares Rise

Return On Customer Service Initiatives Unclear

Wal-Mart management reported that customers are starting to notice improvements in stocking, cleanliness, service and check-out speeds. However, Barclays analyst Meredith Adler doesn’t see how these improvements in customer experience will meaningfully impact Wal-Mart’s bottom line.

“These improvements are coming at a big cost in terms of labor investments, with the higher costs likely to continue at least into FY17, with little visibility into a potential acceleration in sales,” she explained.

Adler remains cautious on a potential Wal-Mart turnaround story. Barclays maintains its Equal-Weight rating on Wal-Mart, but raised its price target to $61.

Deutsche Bank Agrees

Deutsche Bank analyst Paul Trussell agrees that Wal-Mart’s labor initiatives will likely not result in sales growth. “We see elevated labor investments as mostly catch-up/market-based and not necessarily a driver of meaningful returns ahead,” he wrote in a new report.

Deutsche Bank has a Hold rating on Walmart and a $63 target for the stock.

Disclosure: The author holds no position in the stocks mentioned.

Image Credit: "Walmart store exterior 5266815680" by Walmart Corporate from Bentonville, USA - Walmart store exterior. Licensed under CC BY 2.0 via Wikimedia Commons.