Despite high prices, holiday sales surpassed estimates in 2022. Holiday sales rose 7.6%, according to Mastercard SpendingPulse, beating its 7.1% estimates. 

Moreover, with rapid digitalization, the smart retail market is expected to reach $82.68 billion in 2026, growing at a CAGR of 24.4%. Quality big box retail stocks Walmart Inc. (WMT) and Big Lots Inc. (BIG) are poised to benefit from the industry tailwinds.

In addition, the resale goods market is expanding amid rising inflation and is expected to contribute to the retail industry’s growth. According to OfferUp, 93% of Americans say inflation influences their decision to buy and sell second-hand goods.

While WMT has lost 6.2% over the past month, BIG has lost 13.6%. Also, WMT has gained 17.2% over the past six months, while BIG has lost 23.1% over the past six months. But which of these stocks is the better pick now? Let’s find out.

Latest Developments

On December 15, 2022, WMT’s drone delivery service became available for select customers in the Tampa, Florida, Texas, and Orlando areas. This marks a new chapter in fast and effective delivery services.

On the other hand, on December 1, 2022, Bruce Thorn, BIG’s President and CEO, said, “Going forward, we will build on the significant progress we have achieved in strengthening our business model. These efforts will enable us to better adapt to continuously evolving customer needs, build upon our core competencies, and deliver incredible value.”

Recent Financial Results

WMT’s total revenues came in at $152.81 billion for the third quarter that ended October 31, 2022, up 8.7% year-over-year. Also, its net sales came in at $151.47 billion, up 8.8% year-over-year. Its adjusted EPS came in at $1.50, up 3.4% year-over-year.

BIG’s net sales came in at $1.20 billion for the 2022 third quarter, down 9.8% year-over-year. Its adjusted operating loss came in at $109.09 million, up 2,543.3% year-over-year. Its adjusted loss per share came in at $2.99, up 2,035.7% year-over-year.

Past and Expected Financial Performance

WMT’s revenue is expected to increase 5.8% year-over-year to $605.99 billion in 2023 and 2.8% year-over-year to $623.05 billion in 2024. Its EPS is expected to increase 7.7% year-over-year to $6.54 in 2024. Moreover, its EPS is expected to rise 4.3% per annum for the next five years. It surpassed EPS estimates in three of four trailing quarters.

On the other hand, BIG’s revenue is expected to decrease 11% year-over-year to $5.47 billion in 2023. Its EPS is expected to drop 218% year-over-year to negative $6.42 in 2023. Moreover, its EPS is expected to decline by 16.4% per annum for the next five years. It missed EPS estimates in three of the four trailing quarters.

Profitability

WMT’s gross profit margin of 24.38% is lower than BIG’s 35.33%. However, its EBITDA and net income margins of 5.81% and 0.29% are higher than BIG’s 0.29% and negative 2.62%.

In addition, WMT’s ROE, ROA, and ROTC of 10.65%, 9.40%, and 10.10% are compared with BIG’s negative 16.2%, 3.5%, and 2.83%, respectively.

Thus, WMT is more profitable.

Valuation

In terms of forward EV/Sales, WMT’s 0.75x is higher than BIG’s 0.49x. However, WMT’s trailing-12-month EV/EBITDA of 12.96x is substantially lower than BIG’s 163.04x.

POWR Ratings

WMT has an overall rating of A, equating to Strong Buy in our proprietary POWR Ratings system. In contrast, BIG has an overall rating of D, which translates to Sell. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

WMT has an A grade for Sentiment, consistent with favorable analyst expectations. On the other hand, BIG has an F grade for Sentiment, in sync with bleak analyst expectations.

In addition, WMT has a B grade for Stability, consistent with its beta of 0.53, while BIG has a D grade for Stability, in sync with its beta of 1.98.

Of the 39-stock Grocery/Big Box Retailers industry, WMT is ranked #10. BIG is ranked #39.

Beyond what we’ve stated above, we have also rated the stocks for Growth, Value, Momentum, and Quality. Click here to view WMT ratings. Get all BIG ratings here.

The Winner

As the retail industry is expected to grow substantially in the coming years, WMT and BIG are expected to thrive. However, WMT’s better fundamentals make it the better buy here.

Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Grocery/Big Box Retailers industry here.

WMT shares were trading at $143.04 per share on Thursday morning, down $0.72 (-0.50%). Year-to-date, WMT has gained 0.88%, versus a -0.82% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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