Is Walmart the Best Mediocre Company in America?

Another lackluster quarter from the No. 1 retailer

   
Is Walmart the Best Mediocre Company in America?

Walmart’s (WMT) lackluster earnings report this morning is another tired effort from the beleaguered No. 1 retailer in America. WMT’s quarterly sales were up a decent 2.8%, with better sales from the newer, small-format stores and their online business, but same store sales were again flat.

Adding to the mediocrity was a downward revision of its full-year earnings forecast from $5.10-$5.45, to $4.90-$5.15. The earnings of $1.21 per share met analyst expectations and revenue of $120.13 billion was slightly above the consensus of $119 billion.

WMT stock, which closed on Wednesday at $74.03, opened slightly higher on the news.

This earnings report is quite similar to several recent quarters in which declining same-store sales have hurt WMT’s bottom line. WMT stock has been a poor performer since May, when it peaked at $79.20. The excuses for the tepid recent performance were similar to previous quarters. Store executives say that consumers are spending less, and higher employee costs — particularly in health care coverage — are affecting its bottom line. These reasons have been echoed by other retail companies lately, as well.

However, if consumers are spending less, why were the WMT neighborhood supermarket stores up 5.6% on 1.1% fewer customers? That doesn’t add up. Last winter, the retailers were blaming poor store performance on the weather, and now the excuse du jour seems to be declining consumer spending. Even if this is valid, stock market investors want to see growth, and not excuses.

Investors’ Best Action Now

Two current charts of WMT stock show an interesting dichotomy. The first chart is the daily, and suggests that WMT is a weak stock with a 50-day moving average crossing below the 200 day M.A. (aka “Death Cross”), and forming a 6% downtrend of lower highs and lower lows since May, 2014.

walmart daily chart Is Walmart the Best Mediocre Company in America?
Source: stockcharts.com

However, as you can see from the accompanying weekly chart, even with the recent pull back, WMT stock has been moving steadily higher since 2012, with an uptrend from $47.50.

walmart weekly chart Is Walmart the Best Mediocre Company in America?
Source: stockcharts.com

This would seem to suggest that, while WMT stock is dead in the water for short-term investors, it remains one of the leading long-term stocks in the market, particularly for conservative older investors seeking income along with steady growth. The current annual dividend of $1.92 yields about 2.6%, and that dividend has been steadily rising since 1998 when it was only 15 cents per share.

However, notice the stark divergence of the MACD on the weekly chart against the steady price rise. The MACD has now fallen back in a series of lower waves to slightly below the zero line, which suggests that WMT stock could have some further price declines ahead.

Prior to the Walmart earnings report released this morning, WMT stock had a PE of 15.27 on an EPS of $4.84 per share, and boasted a 2.50% dividend yield. Therefore, I think investors who already own WMT shares should continue holding for the long term, while new investors would do better to hold off for awhile until Walmart earnings begin to show more growth.

Like a giant, clumsy Cyclops that can’t get out of its own way, WMT is quite vulnerable to losing market share to its growth-oriented dollar store competitors. This is particularly the case now that Family Dollar Stores (FDO) is likely to be purchased by either Dollar Tree (DLTR) or Dollar General (DG).

I would be a new buyer of WMT stock on a further decline, with a 50% position at the two support levels of $70 and $65. Given the current dividend, a purchase around $65 would bring the yield up close to 3%. For now, Walmart remains the best mediocre company in America.

As of this writing, Ethan Roberts did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2014/08/walmart-earnings-stock-wmt/.

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