Market Preview: Keep Those QE3 Hopes in Check

The firm is expecting earnings of $1.18 a share, the high end of the company's $1.13-$1.18 per share guidance, saying: "Our checks suggested a strong May and July, with a slight deceleration in June, similar to the broader industry."

Wal-Mart has been emphasizing its commitment to having the lowest prices of late and Jefferies notes this has the potential to hurt the bottom line, even as it drives expansion on the top. The firm is expecting a gross margin decline of 24 basis points in the quarter on a year-over-year basis but projects Wal-Mart will be able to counter the impact by leveraging selling, general and administrative expenses by a like amount.

"Although it seems modest and less obvious to some of its competitors, Wal-Mart is investing in everyday low price to reinforce its value message with customers," Jefferies said. "This strategy is not a one quarter even, but more work in progress, as price investment has been promised to roughly match expense leverage. Expense saving appears to be coming in labor and benefits as well as advertising."

How Wal-Mart fares in the current quarter is the key to whether the stock can move another leg higher, the firm said, so any commentary about how August is tracking will surely perk up the ears of investors.

"Q3 a year ago, Wal-Mart turned positive comp store sales, primarily reflecting a big benefit from SKU add-backs as well as inflation," Jefferies said. "Lapping this and comping above 2-3% will be the challenge for WMT to surmount and likely what is needed for the stock to march up the next 10-20%."

S&P Capital IQ also got more bullish on Wal-Mart this week, lifting its price target on the stock to $81 from $75 and giving an incremental boost to its earnings expectations for the next two fiscal years. The firm reiterated a buy rating on the stock and is expecting earnings of $1.17 a share in the second quarter.

"We look for management to raise its FY 13 EPS guidance, currently $4.72-$4.92, when it reports on Thursday," S&P said. "Market share gains driven by price reductions and improved merchandise assortments will drive sales growth for the key back-to-school selling season, in our view. We also expect operating margin expansion from fixed expense leverage as WMT better manages labor costs."

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