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Walmart (WMT): Expectations High Ahead of Q4 Earnings

Our preview of the upcoming week's earnings reports includes Walmart (WMT), Shopify (SHOP) and DraftKings (DKNG).

Walmart (WMT, $137.09) will headline this week's busy earnings calendar, with the discount mega-retailer set to unveil its fourth-quarter results ahead of Thursday's open. 

"Fourth-quarter earnings season has continued to show that corporate sentiment is focused on labor shortages, supply chain related issues and ability to manage inflation," says Gargi Chaudhuri, head of iShares Investment Strategy, Americas. And all three themes are likely to be front and center in WMT's 4Q report.

Yes, higher supply chain costs and inflation will likely be drags on Walmart's quarterly results, says UBS analyst Michael Lasser (Buy). "That said, we believe that WMT benefited from fewer markdowns and increased contributions from ad revenues."

Lasser also believes the Dow Jones stock picked up some additional market share in Q4. 

Why? 

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WMT was "well-positioned to capture holiday demand, and its everyday low prices strategy likely attracted incremental consumers as inflation remained elevated," the analyst writes in a note. "Its gross margin was likely impacted by supply chain costs and not fully passing along inflation, though our expectation for a strong top line and a reduction in COVID costs should have provided meaningful SG&A [selling, general & administrative] leverage."

Elsewhere, BofA analysts (Buy) project a solid fourth quarter for Walmart too, especially on the heels of an impressive third quarter which saw the retailer post U.S. same-store sales growth above 9%. 

Also helping WMT is its "strong inventory positioning (supported by more favorable port access, long-term container shipping agreements and chartered vessel capacity) that likely supported share gains vs. smaller competitors this holiday," they write. 

Analysts, on average, are expecting Walmart to report fourth-quarter earnings of $1.49 per share, +7.2% year-over-year (YoY) and revenue of $151.5 billion, a marginal decrease from the year-ago period.

Shopify Stock Could Use a Post-Earnings Spark

Shopify (SHOP, $885.83) stock was not immune to the early 2022 selloff, with shares down nearly 36% for the year-to-date.

Can the e-commerce company's fourth-quarter earnings report – due out before the Feb. 16 open – spark some much-needed upside in the shares?

Analyst earnings per share (EPS) estimates are broad, coming in at 74 cents per share on the low end and $2.64 per share on the high end. The consensus estimate is for SHOP to report fourth-quarter EPS of $1.58, unchanged from the year prior. Revenue is expected to arrive at $1.69 billion (+72.9% YoY).

"We expect Shopify will report a solid end to calendar year 2021 as the company continues to benefit from new merchant growth and the shift to online commerce," says Deutsche Bank analyst Bhavin Shah (Hold).

However, the analyst will be watching for any commentary related to a potential shift in the company's Shopify Fulfillment (SFN) strategy, which has been key to SHOP's investment thesis, according to Shah.

Wedbush analyst Ygal Arounian will also be watching for SFN updates, as it is expected to be a bigger contributor in 2022. As for SHOP's Q4, he expects the company to post solid results, "with stronger growth earlier in the quarter offsetting slower overall Black Friday/Cyber Monday and December spend."

What's more, even with the stock's early 2022 slump, "Shopify continues to take share of e-commerce and is the best operator in the space," Arounian writes. He has an Outperform (Buy) rating on SHOP.

Analyst: DraftKings Selloff Creates Buying Opportunity

DraftKings (DKNG, $23.64) stock has been trending lower since its mid-March peak near $74. All told, shares are off about 68%, but Morgan Stanley analyst Thomas Allen sees this as a buying opportunity.

Certainly there are some near- and medium-term profit concerns, but investors "should not ignore that DKNG is a leading market share player in what will be a very large profitable market," Allen says.

Needham analysts Bernie McTernan and Chris Pierce seem to agree. "We see DKNG as a leader in the emerging North America online gambling market, a $35B market opportunity," they write in a note. "We are bullish on the potential for near-term market access gains, per capita spending continues to ramp in existing states and DKNG maintains its first or second place position in all states."

The sports betting company will report its fourth-quarter results ahead of the Feb. 18 open. Analysts, on average, expect DraftKings to report a per-share loss of 78 cents, a dime wider than the 68 cents per-share loss it recorded in the year-ago period. On the top line, Wall Street pros are targeting $445.1 million (+38.1% YoY).

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