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Each earnings season brings its fair share of epic surprises to the upside and downside. Sometimes a big sell-off is justified or a sign that the worst is only beginning. But a stock can also sell off for reasons that don’t break the investment thesis — opening the door to a buying opportunity.

Here’s why Walmart (NYSE: WMT), Trimble (NASDAQ: TRMB), and Kinder Morgan (NYSE: KMI) all fell on earnings but could be worth buying now.

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Walmart is putting up good results given the circumstances

Daniel Foelber (Walmart): Walmart stock fell 8% on Thursday after the company reported results for the third quarter of its fiscal 2024. Walmart talked about added cost pressures and a challenged consumer. Walmart’s CFO, John David Rainey, noted on the earnings call:

We like our position relative to competitors as we’ve maintained strong price gaps and increased share while preserving flexibility to respond to competitive dynamics. But we’re not immune from the vagaries of the economy. We see our customers showing ongoing discretion in making trade-offs to be able to afford the things they want, given the sustained high cost of the things they need. … So, sales have been somewhat uneven, and this gives us reason to think slightly more cautiously about the consumer versus 90 days ago.

That does a good job of summing up what Walmart is facing, and that consumer-related challenges are far from over. Walmart has a more staples-focused product mix than many retailers. But it still depends on strong consumer spending, especially during the holiday season. The good news is that Walmart is putting up solid numbers.

The company boosted its full-year revenue and adjusted earnings guidance. It now expects sales to be higher by 5% to 5.5% in fiscal 2024 and for adjusted earnings per share (EPS) to be $6.40 to $6.48. If it hits that goal, Walmart would have an adjusted price-to-earnings ratio of around 24 — which isn’t cheap by any means. After all, Walmart hit an all-time high before the sell-off and has been one of the few retail stocks that have done well on the year.

One concern is that Walmart is growing sales mainly due to food inflation. It expects grocery and health and wellness sales rates to outpace merchandise even in Q4, which is yet another sign that spending on discretionary goods is strained.

Walmart is an incredibly resilient business with an efficient supply chain. It is the kind of company that can take market share even during a challenging environment. Walmart’s brand identity of value and affordability is especially important if consumers continue to cut spending. Walmart deserves its premium valuation and is a stock worth buying on the dip.

Trimble’s weakening end markets shouldn’t cloud the underlying growth

Lee Samaha (Trimble): The market didn’t like Trimble’s third-quarter earnings, and it definitely didn’t like the guidance. Management lowered its full-year revenue and earnings guidance and adjusted its annualized recurring revenue (ARR) guidance from “mid-teens” growth to 13%.

Worse, on the recent earnings call, CEO Rob Painter told investors that “we see increasing signs of weakness and stress across many end markets and geographies.” The weakness is best seen in the 8% year-over-year decline in product sales in the quarter.

That said, context is essential. Trimble’s subscription and services revenue rose 13% in the quarter, and its ARR also increased by 13% in the quarter. These are signs that Trimble’s “connect and scale” strategy is working. It’s a strategy based on connecting products to share real-time data to ultimately scale up and produce systems and processes. Consider a transportation fleet being constantly monitored and guided by Trimble’s positioning technology products to optimize routes using data analytics.

The underlying strategy is working and continues to grow ARR, which will drop down into recurring cash flows. So when its end markets turn up again, Trimble can expect its product, and subscription and services revenue, to grow concurrently.

Offering a high-yield dividend, Kinder Morgan is hanging on the discount rack

Scott Levine (Kinder Morgan): One of the most common mistakes that novice investors — and even some with decades of experience — make is failing to see the value in tried-and-true companies. Kinder Morgan, for example, is a midstream operator that may not be as exhilarating as a cutting-edge tech company, but its business is solid, and it has the potential to provide sizable returns to those who exercise patience.

Disconcerting as the stock’s recent drop may be, there wasn’t anything disastrous in the company’s recent report that warrants the stock’s decline. Instead, the market reacted to Kinder Morgan missing analysts’ revenue and EPS estimates. Drilling down into the company’s results, though, investors will find a lot to celebrate.

The largest energy infrastructure stock in the S&P 500, Kinder Morgan rewards shareholders with a generous dividend that currently has a forward yield of 6.8%, placing it among the top 5% of dividend stocks in the S&P 500. Illustrating how the high-yield dividend is on firm footing, Kinder Morgan reported strong distributable cash flow of $1.1 billion in the third quarter. Management subsequently maintained its 2023 outlook of $2.13 per share, which will adequately cover its 2023 dividend of $1.12 per share.

Trading at 6.6 times operating cash flow, Kinder Morgan is sitting in the bargain bin, as it is changing hands below its five-year average cash flow multiple of 7.8. For income investors, now’s a great time to grease the wheels of the passive income machine with this underappreciated pipeline stock.

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Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kinder Morgan and Walmart. The Motley Fool recommends Trimble. The Motley Fool has a disclosure policy.

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