By: Craig Bowles
Wal-Mart Stores, Inc. (WMT) is slated to report 2Q 2018 (fiscal year) earnings before the bell on Thursday, August 17th. 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
- 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 $1.00 to $1.08 (ex-gain from sale of Suburbia). The Street estimate is $1.07. (Source: Yahoo! Finance) Consensus was $1.07 three months ago, as well.
- Revenues: Analysts expect an increase of 1.7% y/y to $122.88 bln (range $121.53 bln to $124.87 bln). (Currency headwinds reduced much of the FY2017 y/y growth.)
- U.S. Wal-Mart Comparable Store Sales: Guidance is 1.5% to 2.0%.
- Earnings Per Share (EPS) Guidance for 3Q2018: The current Street estimate is $0.98 (range $0.90 to $1.02).
- Earnings Per Share (EPS) Guidance for FY2018: Guidance in February was $4.20 to $4.40. The Street estimate is $4.36.
- Wal-Mart’s trailing P/E of 18.5 compares to a five-year average of 15.0; Price/Book is 3.3 versus a five-year average of 3.1; Price/Sales 0.5 versus a five-year average of 0.5. Price/Cash Flow 8.2 versus a five-year average of 9.0. Dividend yield of 2.5% compares to a 5-year average of 2.6%.
- Analysts view Wal-Mart with 13 (9 two qtrs. ago) Buy, 17 Hold, and 3 Sell ratings. (source: MarketBeat.com)
- Insiders sold 52,123,163 shares the last three months and sold a net 172,702,735 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 3.90%. Options are pricing in an implied move of 4.04% off earnings.
- 08/07: Walmart is making a second attempt at their Scan & Go technology and already rolling it out to more than a dozen stores in Texas, Florida, South Dakota, Arkansas, Georgia, and Kentucky, according to a post on BusinessInsider.com.
- 08/03: Oppenheimer initiated an Outperform rating on Wal-Mart citing initiatives in grocery include improving its “fresh” offerings, making online grocery pick-up services more accessible, growing SKUs on Jet.com, increasing focus on private-label brands, according to a post on CNBC.com.
- 07/31: An internal memo shows Wal-Mart is reshuffling U.S. leadership teams in food, merchandising, according to a post on Reuters.com.
- 07/14: Goldman Sachs upgraded Wal-Mart to Buy from Neutral and added the stock to their Conviction Buy List citing the strong presence (over half the stores) in rural markets as a protective moat against aggressive competition from Amazon, according to a post on CNBC.com.
- 06/16: Wal-Mart acquired the online men’s clothing company Bonobos for $310 million in cash. Bonobos sales are expected to reach $150 million in 2017 and are growing 30% annually, according to a post on Barron’s.com.
- 06/05: After Wal-Mart’s investor day, Cowen came away from WMT’s shareholder meeting impressed with management’s desire and understanding of how to transition WMT to a leading 21st century retailer. Wells Fargo agrees but worries about valuation, according to a post on Barron’s.com.
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 here we are above $80 in the summer of 2017. Seasonality might be a near-term worry, as well as possible rotation back into competitor Target’s stock which has struggled in 2017. Balance area resistance was around $82 in 2015 and support is $69 in the event of a reversal. (Chart courtesy of StockCharts.com)
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 six months. Over the past four quarters, the company has beaten analyst consensus by an average of 3c. Estimize consensus for an EPS (possibly adjusted) of $1.08 on revenue of $123.023 bln compares to analyst consensus of $1.07 on revenue of $122.88 bln. Guidance is factored into the stock’s reaction.
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