Walmart’s (NYSE:) stock surge reflects its dominant industry position and continuous expansion, fueling market optimism and propelling the rally with tangible potential ahead.

Despite anticipated market fluctuations, an estimated 20% upsurge looms on the horizon before the year concludes. Analysts align in raising their outlooks consistently, suggesting sustained bullish momentum. The bustling market activity leads towards the upper echelon of the projected $175 target, representing a substantial 20% leap beyond the post-release surge.

Unpacking Walmart’s Exceptional Quarter: A Triumph Amid Low Expectations

Walmart’s latest quarter performance defied all odds, showcasing strength across all metrics. Notably, prevailing pessimism was evident through a majority of lowered estimates among analysts. Nevertheless, the $161.5 billion revenue figure marks a 6% surge, surpassing expectations by a significant 200 basis points.

All business segments reported growth, prominently led by a 12.1% gain in International markets, translating to a 10.7% increase on a constant currency basis. The US comparable sales rose by 3.8%, solely driven by transaction volume. Sam’s Club exhibited a commendable 4.6% growth in sales with a 4.4% rise in comparatives. While transactions fueled Sam’s Club figures, a marginal reduction in average ticket prices neutralized the impact. Additionally, Sam’s Club generated a robust 13% hike in membership revenue, indicating prospective revenue and earnings leverage in upcoming periods. However, the spike in Sam’s Club revenue could be transient, given the discounted memberships offered in April which may not witness renewal next year.

Walmart’s eCommerce realm continues to be a growth engine, evident in the 21% increase in global online sales propelled by strengths in online sales, same-day delivery services, and robust performance in the Global Ad business, expanding by 24%. The overall strength across categories also bolstered margins, leading to a notable 9.6% rise in consolidated operating income, a 13.7% surge in adjusted operating income, and a remarkable 22.5% increase in adjusted earnings. Surpassing expectations, adjusted earnings clocked at $0.60, exceeding the consensus by a significant 1000 basis points.

Guidance plays a pivotal role in influencing market sentiments. With an updated outlook positioned at the upper limit or above the previous range and exceeding consensus forecasts, Walmart’s continuous momentum and market share traction, especially in crucial categories such as grocery, might propel it to outperform the guided expectations and potentially lead to a revision upwards, despite prevailing weak trends in the retail landscape.

Walmart’s Secure, Strong, and Expanding Capital Returns

Although Walmart incurred negative FCF in Q1, there’s no cause for concern as free cash flow is anticipated to revitalize in the forthcoming quarters, ensuring robust capital returns. Q1 witnessed capital returns encompassing dividends and share buybacks amounting to $1.1 billion, equivalent to approximately 0.2% of the market capitalization. Share repurchases effectively curtailed the share count by an average of 0.35% YoY in the quarter, with sustained projections for the year. The dividend payout, providing an annual yield of approximately 1.45% to investors, mirrors the S&P 500 average and stands testament to Walmart’s commitment to shareholders. Expectations align for a continued growth trajectory in dividends, likely to witness a mid-to-low digit boost throughout the year.

Technically, the stock action manifests promise, with Q1 results and revised guidance propelling the market beyond a 5% surge to touch new record highs. This advancement signifies a breakout from a consolidation phase, setting the stage for a potential $20 surge. If this trend unfolds as envisioned, the market could scale upwards to $80, eclipsing the existing analysts’ high target. However, a risk looms in the form of a probable failure to sustain this upward push. Walmart shares, currently positioned attractively for realizing gains, may witness a cap in the surge over the summer season. In such a scenario, a regression to retest support levels near $60 or lower could precede any fresh highs.