By: Craig Bowles
Wal-Mart Stores, Inc. (WMT) is slated to report 3Q 2017 (fiscal year) earnings before the bell on Thursday, November 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. Wal-Mart guidance is $0.90 to $1.00. The Street estimate is $0.96 (range $0.93 to $1.00). (Source: Yahoo! Finance) Consensus was $0.93 three months ago.
- Revenues: Analysts expect an increase of 1.0% y/y to $118.61 bln (range $117.78 bln to $120.10 bln). (Currency headwinds are expected to reduce much of the FY2017 y/y growth.)
- Comparable Store Sales: Guidance is 1.0% to 1.5%.
- Earnings Per Share (EPS) Guidance for 4Q2017: The current Street estimate is $1.33 (range $1.26 to $1.38).
- Earnings Per Share (EPS) Guidance for FY2017: Current guidance is $4.29 to $4.49.
- Adjusted Earnings Per Share (EPS) Guidance for FY2017: Current guidance is $4.15 to $4.35. The Street estimate is $4.34 (range $4.25 to $4.57). Consensus was $4.27 three months ago.
- Wal-Mart’s trailing P/E of 15.3 compares to a five-year average of 14.6; Price/Book is 2.9 versus a five-year average of 3.1; Price/Sales 0.5 versus a five-year average of 0.5. Price/Cash Flow 7.0 versus a five-year average of 9.8. Dividend yield of 2.8% compares to a 5-year average of 2.5%.
- Analysts view Wal-Mart with 9 (5 last qtr) Buy, 16 Hold, and 3 Sell ratings. (source: MarketBeat.com)
- Insiders sold 5,289,856 shares the last three months and sold a net 63,282,280 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 next 2 years is 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 4.21%. Options are pricing in an implied move of 3.65% off earnings.
- 10/31: Barclays notes that Wal-Mart’s online business, which is already the second largest in the U.S., is under appreciated by investors. Amazon’s interest in building 2,000 Amazon Fresh locations over the next 10 years validates the need for bricks and mortar especially for food, according to a post on Barron’s.com.
- 10/12: Cantor Fitzgerald points out that Comscore data shows Walmart’s online sales grew only 7% in 1Q17 and 12% in 2Q17. Amazon’s momentum will be hard to overcome despite the multi-billion acquisition of Jet.com, according to a post on Barron’s.com.
- 10/06: Buckingham Research said Wal-Mart’s investment to capture the digital shift in consumer spending will continue into FY17 with a payoff only beginning in the following year, according to a post on Barron’s.com.
- 10/05: Walmart boosted its stake in China’s direct sales e-commerce giant JD.com from 5.9% to 10.8%, according to a post on Barron’s.com.
- 09/30: KeyBanc Capital Markets initiated coverage of Wal-Mart with an Overweight rating citing the belief that support from the Walton family has given Mr. McMillon the opportunity to transform the organization, 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 would take the stock back up to $73.50, so the stock has done that already. Competitor Target had held up much better from the end of 2014 through Q1 2016, so possibly we’re seeing some rotation back into WMT more recently. Point and figure technicians have a bullish price objective of $80. (Chart courtesy of StockCharts.com)
With the economic expansion having entered the eighth year, retail and other cyclical industries would normally be expected to struggle amid late-cycle pressures. Analysts seem obsessed with an online battle with Amazon but consumers generally look to Walmart for daily products and Amazon for less mundane items. Walmart’s online efforts would seem to be a positive with huge potential in any case. Over the past four quarters, the company has beaten analyst consensus by an average of 5c. Estimize consensus for an EPS of $0.98 on revenue of $118.709 bln compares to analyst consensus of $0.96 on revenue of $118.61 bln. Guidance is factored into the stock’s reaction.
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