North America

Earnings Preview: Wal-Mart Q1 2018 (WMT)

By: Craig Bowles

Overview

Wal-Mart Stores, Inc. (WMT) is slated to report 1Q 2018 (fiscal year) earnings before the bell on Thursday, May 18th. The earnings release is expected at approximately 7:00 a.m. ET with a pre-recorded call available at Wal-Mart Investor Relations. Results from the world’s largest retailer and constituent of the Dow Jones Industrial Average tend to heavily influence the direction of the equity index futures.

Outliers & Strategy

Key measures:

  • Earnings Per Share (EPS) from Continuing Operations: This value for this measure is most often the figure that compares with consensus estimates. Adjusted Earnings Per Share (EPS) is often available for 4Q and that becomes the comparable value. Guidance is $0.90 to $1.00. The Street estimate is $0.96. (Source: Yahoo! Finance) Consensus was $0.96 three months ago.
  • Revenues: Analysts expect an increase of 1.6% y/y to $117.77 bln (range $115.64 bln to $119.78 bln). (Currency headwinds reduced much of the FY2017 y/y growth.)
  • Comparable Store Sales: Guidance is 1.0% to 1.5%.
  • Earnings Per Share (EPS) Guidance for 2Q2018: The current Street estimate is $1.07 (range $0.98 to $1.18).
  • Earnings Per Share (EPS) Guidance for FY2018: Guidance is $4.20 to $4.40. The Street estimate is $4.32.
  • Wal-Mart’s trailing P/E of 17.5 compares to a five-year average of 15.0; Price/Book is 3.0 versus a five-year average of 3.1; Price/Sales 0.5 versus a five-year average of 0.5. Price/Cash Flow 7.6 versus a five-year average of 9.0. Dividend yield of 2.6% compares to a 5-year average of 2.6%.
  • Analysts view Wal-Mart with 12 (9 last qtr) Buy, 18 Hold, and 4 Sell ratings. (source:  MarketBeat.com)
  • Insiders sold 51,693,621 shares the last three months and sold a net 125,869,428 shares in the past year. (source: NASDAQ.com) (Insider selling has been the norm since Sam Walton’s shares were distributed.) October 2015’s $20 bln in stock buybacks over the following 2 years was a reduction after $15 bln on June 2013 and again October 2014.
  • Wal-Mart results could also impact retailers, such as Target (TGT) –which reports the prior day– and Costco (COST).
  • Wal-Mart shares have a 1-day average price change on earnings of 3.98%. Options are pricing in an implied move of 2.88% off earnings.

Recent News

  • 05/07: A WalMart in Mexico shows what happens when suddenly ‘lawless people’ realize that there aren’t enough security guards in a store to stop them, according to a post on ZeroHedge.com.
  • 04/28: Pacific Crest believe that Walmart’s aggressive stance in e-commerce makes it a much more formidable competitor, according to a post on Barron’s.com.
  • 04/07: Telsey Advisory Group upgraded Wal-Mart Stores to Outperform from Market Perform citing that improving sales growth over the past few quarters shows that the company is ”regaining its dominance in physical retail and exerting new prowess in digital commerce,” according to a post on Barron’s.com.
  • 04/06: A unit of Wal-Mart Stores, Wal-Mart de Mexico (WMMVY), said first-quarter sales growth was the slowest in two years and blames unrest, according to a post on Barron’s.com.

Technical Review

Wal-Mart shares made an all-time high in January 2015 at $90.97 and yet managed to earn the “Dog of the Dow” title by year-end. A 50% bounce took the stock back up to $74.66 in the summer of 2016 and now is testing above that level less than a year later. 2017 strength has coincided with weakness from competitor Target, so there appears to be some money flows at work. Point and figure charts show balance area support at $69. (Chart courtesy of StockCharts.com)

Summary

With the economic expansion eight years old, retail and other cyclical industries would normally be expected to struggle amid late-cycle pressures from inflation and increased consumer debt. Walmart’s online efforts continue and analysts are warming to the potential. Insider selling picked up the past three months. Over the past four quarters, the company has beaten analyst consensus by an average of 5c. Estimize consensus for an EPS (often adjusted in Q4) of $0.97 on revenue of $117.481 bln compares to analyst consensus of $0.96 on revenue of $117.77 bln. Guidance is factored into the stock’s reaction.

 

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