NEW YORK (MONEY) - Shares of the world's biggest retailer have stagnated this year because of fears of sluggish earnings growth. But in the past couple of weeks, the stock has perked up as Wal-Mart's outlook has brightened, and analysts are optimistic that Friday's shareholders' meeting will confirm that.

In February, I took a look at stocks on the Sivy 70 list that were trading near their 52-week lows. That article included this assessment of Wal-Mart (Research): The current 15.2 P/E understates the company's true potential ... and it wouldn't take much good news to bump up the P/E and the share price by 20 percent or more.

Results for the first fiscal quarter (ended April 30) weren't bad -- they surpassed analysts' expectations -- but they still weren't great. Earnings per share rose by 8.6 percent compared with a year earlier. The company's guidance for the second quarter and the rest of the fiscal year was also subdued.

Even so, analysts remained reasonably optimistic and dismissed the cautious guidance as business prudence. Standard & Poor's reiterated a Strong Buy rating. Nonetheless, the share price didn't develop any traction.

During the past couple of weeks, however, investor sentiment has turned more positive. On Thursday, Banc of America raised its rating on Wal-Mart to a Buy. And the share price has advanced to a 52-week high.

One cloud hanging over the stock has been fear that high gasoline prices would discourage consumer spending, particularly for low- and moderate-income households that are inclined to shop at discount stores and mass retailers. On Saturday, Wal-Mart said gas prices took a toll on May same-store sales growth, but estimated results still came in at the low end -- 2.3 percent -- of the forecast 2 percent to 4 percent rise.

Wal-Mart is also making headway on some of the challenges facing the chain. Over the past year, inventory grew faster than analysts thought healthy. But the company trimmed its inventory during the first quarter and says it will continue to reduce clutter at its stores.

Other steps, such as adjusting the product mix to include some higher-margin items, should also help bolster profitability. And Wal-Mart continues to be an immense beneficiary of globalization, selling billions of dollars of goods made at bargain prices in China.

Most important, the chain plans to limit the opening of new stores so that business at existing outlets isn't cannibalized. That won't boost results immediately but is essential to maintain profitability over the long term.

Wal-Mart will likely clarify its progress on these issues at the company's shareholders' meeting and analysts' presentation on Friday. But expectations remain quite positive: Analysts project compound earnings growth of as much as 14 percent annually over the next five years.

Despite the recent 10 percent gain in the share price, Wal-Mart still appears undervalued. Including a 1.4 percent current yield, the stock's long-term total return potential is well above that of the average blue chip. But at a current $49.65, Wal-Mart trades at less than 17 times this year's estimated earnings and only 15 times next year's.

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