During the third week of February, the world’s largest retailer Walmart Stores (NYSE: WMT) reported a higher than anticipated fiscal 2017 fourth-quarter earnings and revenue. However, the market reacted negatively to the results and pushed the stock to a low of $69.87, which represents about a 5% decline from the recent high. Analysts attribute the y-o-y decline in earnings to the drop in the share price. Due to the recent positive developments related to the company, which is detailed below, we expect the stock to bounce back in the current week.
The Bentonville, Arkansas-based company reported 4Q17 revenues of $130.94 billion, up 1% from $129.67 billion in 4Q16. Excluding the effects of currency, the adjusted revenues for the quarter was $133.58 billion, up 3% on a y-o-y basis.
For the quarter ended January 2017, Wal-Mart announced a 17.9% decline in the earnings to $3.76 billion or $1.22 per share, from $4.57 billion or $1.43 per share in the similar period of fiscal 2016. The main reason for the decline in the net income is the 23.6% y-o-y increase in the income tax to $1.66 billion during the fourth quarter of fiscal 2017.
Excluding discontinued real-estate projects and severance, the fourth-quarter adjusted earnings was $1.30 per share, compared with adjusted earnings of $1.49 per share reported in the corresponding quarter last year. The Zacks analysts’ had expected earnings of $1.29 per share on revenues of $130.6 billion.
The US same-store sales for the quarter ended Jan 27th increased by 1.8%, compared with 0.6% comps growth in the last year’s quarter. The figures exceeded the company’s expectations of a 1% to 1.5% increase in same-store sales growth. Notably, it was the tenth consecutive quarter of positive same-store sales growth. In 2016, Wal-Mart also pushed EBay Inc. to second place by accounting for 7.8% of online sales in the US. Amazon currently has a mammoth lead with a 33% share of total online sales in the US.
Looking ahead, the company anticipates comps sales growth of between 1% and 1.5% for 1Q18. Wa-Mart also expects earnings in the range of $0.90 to $1.00 per share for the current quarter. The company also raised its quarterly dividend to $0.51 per share, from the prior $0.50 per share.
In an attempt to cut short the wait time at its pharmacy and money services, the company has set up express lanes which would reduce the wait time to just 40 seconds, from the prior six to eleven minutes. Thus, fundamentally, the stock is expected to attract investors.
Technically, the stock has covered the gap between 68.97 and 70.69. The stochastic indicator is in the oversold region. Thus, an uptrend is highly possible from the current level.
A call option, with an expiry date of March 15th, can be bought to gain from the probable uptrend in the share price. It is also advisable to purchase the contract when the stock trades near 69. By timing the purchase, a trader can increase the chances of ending the trade in the money.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
