Stock Market News – Walmart quarterly earnings on the horizon; rising Treasury yields a consideration

Carol, XM Investment Research Desk

Retail giant Walmart is scheduled to release its Q1 earnings report before Thursday’s US market open. The consensus recommendation for the company is “buy”, which favorably compares to the “hold” average consensus recommendation for the Food Retail & Distribution peer group. 

The supermarket chain’s earnings per share (EPS) are anticipated to come in at $1.12 during its fiscal first quarter ending in April, according to analysts submitting their projections to Thomson Reuters’ estimate system (the Institutional Brokers’ Estimate System – I/B/E/S). Current expectations reflect an upward revision from $1.11 from four weeks ago. If the corporation’s bottom line matches estimates, this would represent an increase of 12% compared to the same quarter from last year when the firm made $1.00 per share. Meanwhile, analysts’ EPS forecasts range from $1.06 to $1.18. Walmart delivered an earnings beat in three of the four preceding quarters, while its results negatively surprised once.

A positive earnings surprise could see the corporation’s stock price generate buying interest. Resistance to price advances could take place around the current level of the 50-day moving average at $86.76, with the 200-day MA at $89.73 being eyed next in the event of stronger bullish movement. If, on the other hand, financial results disappoint, the stock might come under downside pressure, with support to declines potentially coming around the seven-month low of $81.95 recorded on May 10. The region around the $80 round figure was congested in the past and may provide additional support in case of sharper losses. Empirically, the greater the deviation between projected and actual results, the more considerable the movement in a given firm’s share price.

Utilizing the RSI to gauge the stock’s short-term momentum, it is looking cautiously positive at the moment: the indicator is below the 50 neutral-perceived level but is on the rise.

Besides the earnings number, investors will also be paying attention to revenues; the chart below provides a revenue breakdown (Sam’s club is an American chain of membership-only retail warehouse clubs owned and operated by Walmart). Another area of interest is e-commerce growth, which notably declined in the preceding quarter, weighing on the firm’s stock price that experienced a free-fall amounting to 10.2% of its value as a result. In this respect, Amazon’s respective e-commerce business is seen as a major threat to Walmart. Management guidance on the firm’s outlook can spur movements in the share price as well.

Recent M&A activity involving the company has been the decision to acquire a controlling interest in India’s biggest online seller Flipkart Group for $16 billion; this is the biggest deal in Walmart’s history. The decision underlies the firm’s commitment to e-commerce and illustrates an increased focus towards the Indian market, but also adds fuel to the rivalry with Amazon. For the record, the news about the acquisition was met with investor skepticism – Flipkart is expected to be unprofitable for at least the foreseeable future – and a fall in the retailer’s share price.

Walmart is an S&P 500 component stock, while it is also one of the thirty blue chips that comprise the Dow Jones Industrial Average. Year-to-date, the company’s stock price is trading lower by 13.7%, underperforming both benchmarks; the Dow is marginally higher so far in 2018, while the S&P equivalent performance stands at 1.6%. Wall Street analysts’ mean and median price target on Walmart are at $100.60 and $99.00 correspondingly, reflecting upside potential relative to where the shares currently trade.

The chart below shows the reinvested total return from an investment in Walmart and the S&P 500 five years ago. One such investment in the former would have yielded 22.2%, with the respective performance for the S&P standing at 82.2%.

Lastly, a macro-consideration for equity market investors are rising Treasury yields. The higher the yields, the more attractive the prospect of shifting a given portfolio’s asset mix more towards bonds; the implication being less funds invested in assets such as equities. In this respect, Walmart’s corporate earnings – or any given company’s earnings for that matter – may assume less significance by market participants, who instead may decide to position themselves based on the direction in yields.