The world's largest retailer isn't immune from falling consumer demand.
Jefferies lowered its rating and downgraded its stock price and earnings estimates on Wal-Mart Stores' Tuesday, saying household income for core customers will get squeezed further as rising fuel and food costs persist.
"Based on all the different data points we have, our conclusion is that there may simply be too much economic pressure on Wal-Mart’s core consumer for it to overcome with merchandising changes alone," the analysts wrote.
"Further, competition is getting tougher with more competitors expanding in the food and consumables business. In turn, we believe this may translate to mediocre results for a longer period of time than we initially thought," according to the note.
The analysts now rate Wal-Mart at "hold" from "buy" and reduced their current price target to $56 from $61. They base that on Wal-Mart shares selling at about 12 times Jefferies' full-year 2013 earnings estimate.
The analysts reduced fiscal 2012 and 2013 estimates to $4.43 and $4.71, from $4.52 and $4.95, respectively. They also believe the company's stock buyback program will slow after it recently bought two companies, Netto and Massmart.
"Data points don’t look great," the analysts wrote in a note to clients. "Recent market share data suggest continued challenges at Wal-Mart in [the second quarter], which combined with our own checks lead us to think there is downside risk to sales in [the second quarter] and potentially over the balance of the year."
The report comes the same day the Commerce Department reported a 0.2 percent drop in consumer spending, the first drop since September 2009, after edging up 0.1 percent in May.
Despite the downgrade, the Jefferies analysts think Wal-Mart should be able to report $1.08 in second-quarter earnings, the analyst consensus estimate, as it "laps extremely easy gross margin comparisons, after heavy price rollbacks last year, and benefits from favorable currency translation" of perhaps 2 cents a share.
"We also believe the company has been managing labor tightly and management has been quite vocal about its ability to find further cost reduction opportunities," according to the analysts.
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Jefferies analysts receive compensation based in part on the overall performance of the firm, including investment banking income.