by Ian Harvey
August 14, 2019
Walmart Inc (NYSE: WMT)
Walmart earnings will be reported before the market opens tomorrow, Thursday, August 15, 2019. The consensus earnings estimate is $1.21 per share on revenue of $130.49 billion; but the Whisper number is higher at $1.25 per share.
Consensus estimates are for earnings to decline year-over-year by 6.20% with revenue increasing by 1.92%.
Walmart did very well off the lows in December, up almost 35%, and is now giving some of that back – the stock is down more than 6% in the last month; and there seems to be more giveback to come.
The stock’s relative performance to the market is an issue to be considered. There was an attempt for a breakout from the December lows, but this has fallen flat. A bearish pattern has emerged that does not look good for the stock price future, and any catalysts, such as the upcoming Walmart earnings report, after such a big run-up, will likely cause a major down-turn.
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Influencing factors for Walmart earnings…..
Walmart's international segment - which posted unusually weak results last quarter due to economic struggles in places like the U.K. and China - is a concern. Revenue rose by just 1%, in fact, and another roughly flat result might threaten management's wider 2020 outlook.
Another worrying area is the worsening trade tensions between the U.S. and China. Walmart CEO Doug McMillon and his team said back in May that they were preparing for worsening trade tensions between the U.S. and China, which has been the recent scenario. This has been problematic for Walmart's latest profitability metric, along with its earnings outlook, which is likely to show strain from increasing cost pressures across many popular consumer categories. And it's reasonable to expect that, given the choice between protecting margins and maintaining growth, Walmart will choose to defend its market share at the expense of profits.
The future outlook is also an area to watch when presented by CFO Brett Biggs. Walmart currently predicts sales growth of 3% in the U.S. and 5% in the international division, with adjusted earnings rising at about the same rate. However, there have been many developments around the world that could impact the forecast heading into the final half of Walmart's fiscal year.
Michael Lasser of UBS says the trade war will prevent Walmart from raising its guidance.
“Historically, Walmart has updated its guidance with its 2Q results,” he wrote in a note previewing the report. “We believe it would have looked to increase its outlook as recently as two weeks ago. But, the most recent tariff development and the resulting uncertainty lead us to believe there’s just not a great incentive to raise expectations at this point.”
UBS rates Walmart stock neutral with a $107 price target.
Guns and gun-related apparel sales will be another issue that needs to be addressed. Scott Mushkin, senior retailing and staples analyst at Wolfe Research, says Walmart probably will stick to its decision to continue selling guns, but may address security concerns.
He also thinks that Walmart’s “obsession” with Amazon has proven too costly. He downgraded shares to “underperform” in May. “I think the challenge we have is looking at the losses they're seeing both overseas in their E-commerce operations and here in the US-- upwards of $4 billion, we estimate, and likely to rise.”
Also, short interest has increased by 4.8% since the company's last earnings release
Walmart has an average stock rating of overweight with a target price of $109.56, according to 31 analysts.
What can you do?
For the short-term, Walmart earnings will probably be a major influence on price movement, which will likely cause more downward trajectory, likely back to the break-out price in December, approximately $103, to start with.
If you agree with this scenario you may wish to consider the following options trade…..
Option trade to consider: Buy the WMT SEP 20 2019 105.000 PUT at approximately $2.30.
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An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.
It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!