Take Walmart Stock Out of Your Portfolio Basket

by Louis Navellier | February 20, 2014 10:53 am

Take Walmart Stock Out of Your Portfolio Basket

Walmart185 Take Walmart Stock Out of Your Portfolio Basket  Welcome to the Stock of the Day. Everyone knows Wal-Mart (WMT[1]) for its “Every Day Low Prices,” but shareholders didn’t bargain for a Q4 earnings report that would also send share prices lower at today’s open. But with warmer temperatures just around the corner and a new dividend hike, could this pullback be a buying opportunity?

Find out now.

Company Overview

Even though it started as a mom-and-pop operation in 1962, Wal-Mart  has since grown into the largest public corporation by revenue. Although it is best known for its Walmart brand name, Wal-Mart  is actually responsible for 55 brands of discount department stores across 27 countries.

Wal-Mart has the largest private workforce in the world; it employs over 2.2 million individuals across more than 10,800 locations worldwide.

Earnings Rundown

Wal-Mart reported mixed results for the fourth quarter. On the one hand, total sales climbed 1.5% year-over-year to $129.71 billion. However, analysts had forecast sales of $130.57 billion, so Wal-Mart posted a minor sales miss. A competitive retail environment and unfavorable currency exchange rates weighed on sales both home and abroad.

Meanwhile, net income fell 21% to $4.43 billion, or $1.36 per share. Adjusted earnings were $1.60 per share, which topped the consensus earnings estimate by a penny.

Future Outlook

The nail in the coffin was that Walmart management issued a weak Q1 earnings guidance of $1.10 to $1.20 EPS, below the $1.23 EPS consensus estimate. For fiscal 2015 the company forecasts earnings between $5.10 to $5.45 per share on 3% to 5% net sales growth. This is also below the Street view of $5.54 EPS on $493.06 billion in revenue.

Management tried to smooth over the weak forecast by hiking up the 2015 annual dividend by 2% to $1.92 per share. The dividend will be paid in four quarterly installments. But as I’ll discuss shortly, not even the stock’s 2.5% dividend could entice me to buy WMT shares, and here’s why.

Current Ratings

Before you buy any stock, you should always run it through my free Portfolio Grader[2] ratings system. Institutional buying pressure for Walmart stock has eroded lately—as shown by its D-rated Quantitative Grade. This is very important because it suggests that WMT has a poor risk-to-return ratio. And on the fundamentals side, there is ample room for improvement.

Currently, Wal-Mart receives C- and D-ratings for seven of the eight metrics I graded it on, including sales growth and earnings growth. The sole exception is its A-rated return on equity. So WMT receives a C for its Fundamental Grade.

Bottom Line: As of this posting I consider Walmart stock a D-rated Sell.

Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website[3]!

Endnotes:
  1. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  2. Portfolio Grader: http://www.navelliergrowth.investorplace.com/portfolio-grader/
  3. my Portfolio Grader website: http://navelliergrowth.investorplace.com/portfolio-grader/

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