Time and time again, Walmart (WMT) has put to bed the notion that it is going to become a victim of Amazon (AMZN) . Yet once or twice a year we'll hear how retail is failing or some headline about Walmart's forthcoming epic crumble will try and get your click. But here we are reading yet another solid earnings report from the company on Tuesday.
Walmart announced earnings of $1.41 per share on $138.8 billion in revenue. The EPS number came in $0.08 ahead of expectations while revenue basically landed in line with Wall Street estimates. When revenue hits nine figures in a single quarter it can be hard to move the number much beyond expectations, so in-line is certainly not disappointing.
Stripping out the impacts of foreign currency, Walmart's growth for both the fourth quarter and full year came in around 3%. While this isn't earth-shattering, I have to remind myself this is a company pulling in $5 billion per year in bricks-and-mortar retail. Any growth is impressive, especially when paired with profitability. That being said, Walmart isn't "cheap" at these levels.
Buyers above $100 are likely enticed by the combination of the strong e-commerce growth along with the return of capital. Walmart posted 40% gains in e-commerce. Not surprisingly this is where the company's growth emulates, and I believe it is outpacing expectations.
Furthermore, the company returned $13.5 billion through dividends and repurchases. That works out to nearly 5% of its current market cap. With a dividend increase to a yield of 2% that means another 3% is going toward stock repurchases providing some support for buyers.
The shares are pushing the 2018 highs, but this double-top may cause some challenges. Over the past two years, Walmart has a history of tepid performance for the three weeks following earnings after day one. The stock has traded lower from day one's close on six occasions while rising two times and remaining flat once. Following this thesis, a trade for consideration would be a bearish call spread expiring March 15, 2019.
-- Sell to open 1 March 15, 2019, $106 call
-- Buy to open 1 March 15, 2019, $109 call
Net Credit: $65
Max Risk: $235
Max Reward: $65
Days Until Expiration: 25
It's worth noting that there is a dividend of $0.53 projected on March 6, 2019, so that will reduce the current price of the stock.