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Walmart Inc (NYSE:WMT, XETRA:WMT)'s upcoming second quarter earnings report could act as a positive catalyst for the stock despite expectations for slower comparable sales growth, according to UBS analysts, which argued that investors are focusing too heavily on a single metric rather than the retailer's longer-term earnings potential.
UBS wrote that expectations heading into the report appear "balanced, perhaps even subdued," with the market looking for roughly 3.5% comparable sales growth at Walmart US, down from 4.1% in the first quarter.
The firm noted that Walmart's valuation has also declined and investor positioning is less crowded than ahead of recent earnings reports, creating what it views as one of the company's more attractive setups in recent quarters.
The analysts argued that any moderation in reported comparable sales growth is likely to reflect temporary factors rather than deterioration in Walmart's business.
"In many respects, this quarter is a classic example of the market mistaking deceleration for deterioration," UBS wrote.
The firm expects headwinds in Walmart's Health & Wellness segment, including the impact of Maximum Fair Pricing legislation and slowing GLP-1 demand, to weigh on overall comparable sales by around 100 basis points in the second quarter.
UBS said those pressures are masking continued strength in the retailer's core grocery and general merchandise businesses, which account for roughly 83% of sales.
UBS expects Walmart to continue gaining market share in key categories while benefiting from investments in value, convenience and faster delivery.
The analysts also said some moderation in general merchandise reflects lower pricing growth as tariff-related inflation eases rather than weakening consumer demand.
Looking beyond quarterly sales, UBS maintained that Walmart's long-term investment case remains supported by productivity initiatives, supply chain modernization, automation and the expansion of higher-margin businesses.
The firm forecasts Walmart's alternative revenue streams will grow from about $21 billion in 2025 to $28 billion in 2026 and $36 billion in 2027, providing additional earnings growth and greater flexibility to invest in pricing and customer acquisition while maintaining profitability.
UBS also expects Walmart to reaffirm its full-year guidance for constant-currency sales growth of 3.5% to 4.5% and adjusted earnings per share of $2.75 to $2.85.
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