Walmart (WMT) reports tomorrow (Tuesday) morning. The shares are in an interesting spot after peaking in early to mid-July, and then just very quietly moving sideways to slightly lower for six weeks. In fact, over the past three months, these shares have underperformed, up just 5.3% versus the likes of such key competitors Amazon (AMZN) , and Target (TGT) , up 30.6% and 12.9%, respectively. This was pointed up to me in fun by an acquaintance (who favors Target) who knows that I am a Walmart fan and shareholder. One, the Amazon comparison just is not fair. Not yet anyway. That said, I'm just as big a fan (as well as shareholder) in that name anyway. Target, for that matter... okay that's three months. Year to date, Walmart is up 11.6%, while Target is 6.5% higher, and the S&P 500 is up just 4.4%. We can all find data to support what we want to see.
The Focus
Wall Street consensus for Walmart on Tuesday is for EPS of $1.26 on revenue of $133.9 billion. If realized this would actually show a slight earnings contract (one penny) from a year ago on sales growth of 2.7%. The sales growth would be a return to trend after the pandemic induced mania of the first quarter. For me, there are two metrics that I think will matter to investors, at least this investor), as well as one item that will have to be covered in the conference call as I would not expect to see any targeted guidance given the still uncertain economic conditions created around the national spread of Covid-19.
The focus, I believe, will be on growth in e-commerce. The educated guess is that e-commerce remained strong as many folks continue to order what they need, particularly in groceries and for the pantry online, either for home delivery or curbside pickup. Obviously these kinds of sales, while making one competitive, have a corrosive impact upon profit margins, as do making the stores safe for both employees and customers. That brings us to same store sales. Wall Street looks for 5.5% growth here, and there will be an almost immediate algorithmic reaction visible in the share price based upon which side of that number this print hits the tape at. As for covid-related expenses, that number broken out for the first quarter, hit $900 million and will potentially go even higher for Q2. Just, for me anyway, too difficult to predict how the market takes that. They may actually like the increased focus on safety.
The Commentary
Lastly, after all of the numbers have been posted, and before the questions start to fly... there will have to be some kind of commentary on the still developing Walmart+ subscription service, which will be meant to compete on a more level playing field with Amazon Prime. The stock rallied hard on the initial announcement, and then took some lumps as word passed that this new membership/loyalty program would be delayed. The stock trades at 26 times forward looking earnings. To be honest, that is a little rich for what Walmart has been. That's also dirt cheap if they are to be valued as an e-commerce platform with a program in place that almost enforced loyalty. Then, maybe at some point... start adding other services. That's a long way off. My longer term vision for Walmart is actually so positive that I really hope the shares selloff a bit this week. I wouldn't mind adding a few shares if they do.
The Chart
Readers will note that WMT approaches a $133 pivot just as earnings are about to hit the tape. Springboard? Maybe. Relative Strength is solid. The daily MACD is well positioned. That said, performance will dictate. You give me something in the mid to high $120's closer to the 50 day SMA, and I am a buyer for sure. These shares find support at or above pivot, and my target price becomes $151. This may be a good day for the weekly bull call spread coupled with the sale of discounted put if that will cover the outlay. This may be a game of finesse.
(Amazon is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells AMZN? Learn more now.)
