How to Play Wal-Mart's Earnings

On the back of solid gains yesterday, stocks opened roughly flat this morning, with the S&P 500 (SNPINDEX: ^GSPC  ) down just two points and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI  ) up a nominal seven points as of 10:15 a.m. EST.

Attention, value shoppers
While the retailing sector got a lift yesterday from the news that Office Depot and OfficeMax are in merger talks, Wal-Mart (NYSE: WMT  ) shares fell 0.8%. Granted, given its size (its market capitalization is $230 billion), no one is likely to be acquiring the "Bentonville behemoth" anytime soon, but there are other factors at play.

Yesterday's decline followed a difficult Friday, during which Wal-Mart's stock fell 2.1% on a report from Bloomberg News concerning a leaked internal email that referenced February sales. In the email, dated Feb. 12, Wal-Mart vice president of finance and logistics Jerry Murray wrote to some colleagues: "In case you haven't seen a sales report these days, February MTD [month-to-date] sales are a total disaster, the worst start to a month I have seen in my ~7 years with the company."

Bloomberg also cited a Feb. 1 email from another executive, who complained [my emphasis]:

Have you ever had one of those weeks where your best- prepared plans weren't good enough to accomplish everything you set out to do? Well, we just had one of those weeks here at Walmart U.S. Where are all the customers? And where's their money?

None of this bodes well for the earnings report on the fiscal fourth quarter ended in January, which the company releases tomorrow morning. These are the Wall Street consensus estimates Wal-Mart is up against:


Earnings per Share


Analysts' estimate


$128.9 billion

Implied year-on-year growth



Source: S&P Capital IQ.

The leaked emails referenced above suggest that an earnings miss is eminently possible, as analysts may not have had the means to adjust their estimates -- after all, the emails did not quantify any shortfall. If that's the case, the shares could decline tomorrow, particularly if executives indicate that weak demand is an ongoing problem. For value-oriented investors with the patience to look beyond the next quarter, that could provide an opportunity; trading at 13.2 times estimated EPS for the next 12 months and paying a 2.3% dividend yield, the shares don't look like a bad bargain in this environment.

To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." Inside, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2265614, ~/Articles/ArticleHandler.aspx, 9/28/2016 2:53:34 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 5 hours ago Sponsored by:
DOW 18,228.30 133.47 0.74%
S&P 500 2,159.93 13.83 0.64%
NASD 5,305.71 48.22 0.92%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/27/2016 4:45 PM
^DJI $18228.30 Up +133.47 +0.74%
^GSPC $2159.93 Up +13.83 +0.64%
S&P 500 INDEX CAPS Rating: No stars
WMT $72.33 Up +0.71 +0.99%
Wal-Mart Stores CAPS Rating: ***