The Minneapolis-based retailer Walmart’s (WMT) fiscal Q2 earnings are just around the corner, with results expected to be published before market open on Thursday, August 21st. The company is steadily climbing back toward its all-time high of $105 per share, last seen in February, as tariff risks are absorbed and U.S. consumer demand proves strong and resilient.
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Momentum remains clearly bullish, with analysts nudging their top- and bottom-line estimates slightly higher over the past month. All signs point to another solid—though not exactly thrilling—quarter for top-line growth.
I’m still not a huge fan of Walmart’s valuation, especially with free cash flow yields just a bit over 1%, where I think it could be far more compelling. That said, I can’t ignore Walmart’s impressive cash flow generation. So, I’m still leaning toward a Buy rating, supported by solid economic tailwinds and pricing resilience, with the stock likely to make another run toward those all-time highs.
Tariff Absorption and Walmart’s Advantage
Over the past few months, the rise in U.S. import tariffs has been a key theme supporting Walmart’s thesis, given how sensitive the company is to pricing. The relevant concept here is “tariff absorption,” where exporters choose to absorb some of the tariff costs so they don’t lose share in the valuable U.S. market.
For Walmart, as a price leader and inflation fighter with around 200 million customers, the chain manages to keep prices low even in inflationary scenarios. Its extensive physical footprint and high customer traffic let it combine scale and convenience, allowing the company to absorb costs much better than smaller competitors.
Walmart also has a history of pressuring suppliers to keep prices down. For suppliers, it often makes sense to absorb part of the extra tariff costs to continue selling to Walmart—losing Walmart as a customer would mean giving up huge volumes. That said, CEO Doug McMillon has noted that tariff increases are likely to push prices higher for consumers eventually, and these changes are expected to roll out throughout the second half of 2025.
Even so, my take is that Walmart will likely continue benefiting from high import tariffs, with suppliers bearing most of the cost—especially as customers keep buying and reinforcing the company’s value proposition.
Strong Consumer Demand Should Drive Walmart Forward
In addition to tariffs likely being absorbed, another factor supports the idea that Walmart should post amiable numbers for Q2. June and Q2 2025 retail data show that consumer demand remains solid, with retail and food services up 3.9% year-over-year and Q2 sales up 4.1%. Growth is robust in essentials like groceries and food services, while digital retail continues to expand, up 4.5% YoY. This combination of healthy spending creates a bullish backdrop for Walmart’s Q2, which should translate into solid same-store sales, steady traffic, and overall earnings momentum.
On top of that, the “One Big Beautiful Bill Act” of 2025 temporarily doubled the income tax credit for families with children, raising the maximum to $2,500 per child through 2028. The goal is to stimulate consumption, especially among low- and middle-income families. Naturally, this injection of funds tends to benefit retailers like Walmart, which serve this audience and sell essential products.
Given these factors, it wouldn’t be surprising to see U.S. comp sales growth in Q2 match or even exceed the 4.5% posted in Q1. Additionally, Walmart’s net income margin is currently 2.75%, slightly below past levels above 3%, suggesting room for expansion. The company has grown EBIT margins for six consecutive quarters, and the trend is likely to continue in Q2, especially with management expressing confidence in navigating tariff pressures and growing profits faster than sales.
Predictable Earnings and Low Volatility Drive Walmart Appeal
Valuations are one of the most sensitive parts of the broader market thesis, with Walmart currently trading at 44x earnings. The market is essentially projecting that the company will double its profits over the next six years if the business continues at its current pace.
While this multiple seems high compared to the industry average of 17.5x, a key attraction of the thesis is Walmart’s stable cash generation—with free cash flow close to $10 billion over the last twelve months—and sustainable growth, offering both capital protection and upside. Even with a free cash flow yield of just 1.2%, it’s reasonable to accept a lower yield in exchange for low volatility and predictability.
For context, looking at the options market, the at-the-money straddles closest to expiration after Q2 earnings suggest an expected earnings move of ~4.71%, which is relatively low, especially compared to technology companies that often see double-digit earnings moves. For Walmart, earnings moves typically range between 3% and 6%, depending on the quarter, so current expectations are well within the historical range.
Is Walmart a Buy, Hold, or Sell?
Analysts have been overwhelmingly bullish on Walmart. All 27 analysts covering the stock via TipRanks are expecting higher prices in the next twelve months. Moreover, WMT’s average price target of $113 implies an upside potential of 12%.
Tailwinds Keep Walmart’s Bull Case Intact
The setup appears favorable for Walmart heading into its second-quarter results. Consumer spending tailwinds supported by recent retail data, limited tariff-related impacts, and margin expansion driven by strong same-store sales suggest a positive outlook.
While the stock’s premium valuation already reflects much of this strength, paying up for a business with a relatively low risk of underperformance remains compelling in the current environment. Accordingly, I maintain a Buy rating on WMT ahead of earnings.