This retailer is Telsey's Top Pick for the upcoming holiday season

Investing.com -- Analysts at Telsey Advisory Group (TAG) said Walmart (NYSE:WMT) is their top stock pick for the upcoming holiday season, with the retail giant set to report earnings for its fiscal Q3 2024 on Nov. 19.

The brokerage firm forecasts solid quarterly performance from Walmart, driven by increased market share in the grocery sector, improvements in non-discretionary items, and benefits from strategic initiatives such as store revamps and digital expansion.

“We also expect a continued solid contribution from the company’s higher engagement with upper-income households,” TAG analysts led by Joseph Feldman said in a note.

“This should be partly offset by disinflation/deflation in select categories and ongoing pressure from the challenging consumer spending environment,” they added.

The retailer is also poised to see advantages from reduced supply chain costs and profitable ventures such as advertising and third-party fulfillment services. However, these gains may be partially counterbalanced by the cost of promotions and investments in technology and wages.

“Overall, Walmart's defensive product mix and strong omnichannel model should have driven profitable market share gains in 3Q24,” analysts noted.

Looking ahead to the 2024 holiday season, analysts believe that consumers will maintain resilience in their spending habits, with a gradual pivot towards discretionary products.

Walmart is expected to capitalize on this trend through various growth initiatives aimed at enhancing its general merchandise offerings. These initiatives include competitive pricing, an expanded online product assortment, and quicker fulfillment options, alongside strong grocery and health and wellness trends.

TAG predicts that improvements in discretionary categories will likely bolster Walmart's profit margins and enable the company to more effectively manage expenses. According to TAG, this trend is expected to be more evident in the fourth quarter of fiscal year 2024.

Based on Walmart's strong business momentum, TAG foresees the company's operating income growing at a faster pace than sales in the fourth quarter of 2024 and into 2025.

Moreover, the firm believes Walmart will adjust its fiscal year 2024 earnings per share (EPS) guidance towards the higher end of the $2.35 to $2.43 range.

TAG reiterated an Outperform rating on Walmart stock with a price target of $92.