Walmart Inc. (WMT) in Bentonville, Ark., is in the retail, wholesale, and other businesses worldwide. The company operates through Walmart U.S.; Walmart International; and Sam’s Club. In comparison, Big Lots, Inc. (BIG) in Columbus, Ohio, is a home discount retailer in the United States. The company offers products under various merchandising categories that include furniture, seasonal, soft home, and food.

According to the Consumer Price Index, inflation hit 8.5% in the United States last month–its highest 12-month gain since 1981–due to a surge in gasoline prices tied to the Russia-Ukraine war. Therefore, discount retail store operators should witness strong demand because they offer a wide range of goods at prices lower than traditional retail outlets. Furthermore, because the economy is still reopening, discount retailers are expected to benefit not only from their online sales but from growing physical store-based sales. According to Research and Markets, the global retail market is expected to grow at a 7% CAGR through 2025. Therefore, both WMT and BIG should benefit.

WMT stock has gained 10.8% in price over the past month, while BIG has negative returns. Also, WMT’s 13.3% gains over the past nine months compare with BIG’s negative returns. WMT is also the clear winner with 14% gains versus BIG’s negative returns in terms of the past three month’s performance.

Click here to checkout our Retail Industry Report for 2022

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On March 15, 2022, WMT announced plans to make Toronto, Ontario and Atlanta, Georgia, two new Walmart Global Tech hubs because of their growing tech presence, connection to Walmart, and broad and diverse local talent. The expansion is part of Walmart Global Tech’s plan to hire more than 5,000 associates globally this fiscal year.

On March 3, 2022, Bruce Thorn, President and CEO of BIG, said, “We have much to be excited about as we enter 2022. Our new store openings are proceeding as planned, our in-stock levels are improving, and our productivity initiatives continue to deliver and gain traction.”

Recent Financial Results

WMT’s total revenue increased 4.3% year-over-year to $152.90 billion for the fiscal fourth quarter ended January 31, 2022. The company’s net income came in at $3.63 billion compared to a loss of $2 billion in the prior-year quarter. Also, its EPS came in at $1.28 compared to a loss of $0.74 in the year-ago period.

BIG’s net sales decreased 0.3% year-over-year to $1.73 billion for the fourth quarter ended January 29, 2022. The company’s net income declined 49.2% year-over-year to $49.80 million. Also, its EPS came in at $1.63, down 37.1% year-over-year.

Past and Expected Financial Performance

WMT’s net income and EPS grew at CAGRs of 27% and 29.2%, respectively, over the past three years. Analysts expect WMT’s revenue to increase 3.1% in fiscal 2023 and 3.5% in fiscal 2024. The company’s EPS is expected to grow 7.3% for the quarter ending July 31, 2022, and 4.6% in fiscal 2023. Moreover, its EPS is expected to grow at a rate of 8.4% per annum over the next five years.

On the other hand, BIG’s net income and EPS grew at CAGRs of 4.3% and 11.7%, respectively, over the past three years. The company’s revenue is expected to increase 0.2% in fiscal 2023 and 4.7% in fiscal 2024. However, its EPS is expected to decline 17.4% for the quarter ending July 31, 2022, and 11.4% in fiscal 2023. Also, BIG’s EPS is expected to decrease at a rate of 5.2% per annum over the next five years.

Profitability

WMT’s trailing-12-month revenue is 93.13 times what BIG generates. WMT is more profitable, with an EBIT and EBITDA margin of 4.53% and 6.39% compared to BIG’s 4% and 6.33%, respectively.

On the other hand, WMT’s ROA and ROTC of 6.52% and 10.76% are higher than BIG’s 3.86% and 5.25%, respectively.

Valuation

In terms of forward non-GAAP P/E, WMT is currently trading at 23.63x, 235.4% higher than BIG’s 7.94x. Moreover, WMT’s forward EV/EBITDA ratio of 12.79x is 50.6% higher than BIG’s 8.49x.

So, BIG is relatively affordable here.

POWR Ratings

WMT has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. On the other hand, BIG has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

WMT has a B grade for Growth, consistent with analysts’ expectations that its EPS will increase in the upcoming months. On the other hand, BIG has a D grade for Growth, in sync with analysts’ expectations that its EPS will decline in the near term.

Moreover, WMT has a B grade for Stability, in sync with its beta of 0.55. In comparison, BIG has a D grade for Stability, in sync with its beta of 2.21.

Of the 39 stocks in the A-rated Grocery/Big Box Retailers industry, WMT is ranked #8. In comparison, BIG is ranked #34.

Beyond what I have stated above, we have also rated the stocks for Sentiment, Value, Quality, and Momentum. Click here to view all the WMT ratings. Also, get all the BIG ratings here.

The Winner

The discount retail industry is expected to grow significantly with the rapid shift to online platforms amid high discretionary demand. While both WMT and BIG are expected to benefit, it is better to bet on WMT now because of its robust financials, high profitability, and better growth prospects.

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

Click here to checkout our Retail Industry Report for 2022

WMT shares were trading at $157.70 per share on Friday afternoon, down $2.17 (-1.36%). Year-to-date, WMT has gained 9.41%, versus a -9.60% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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