Wal-Mart Stores, Inc. (WMT) kicks off retail earnings week next week, with heavy hitters including Target (TGT) and Home Depot (HD), also set to take the stage.
For its part, Walmart is scheduled to release its second-quarter earnings figures ahead of the market open on Tuesday. Wall Street isn’t expecting much, and WMT stock has been beaten down this year, but there are still opportunities for savvy Walmart options traders ahead of the event.
Digging into the numbers, Wall Street is anticipating a profit of $1.13 per share, a figure that is down 8 cents year-over-year. Revenue is seen limping lower by 0.3% to $119.78 billion.
And it appears the brokerage community is pretty apathetic when it comes to Walmart’s prospects. Currently, EarningsWhisper.com places the Q2 whisper number in line with the consensus.
Furthermore, 20 of the 31 analysts following WMT stock rate it a “hold,” versus seven “buys” and four “sells.” Even the 12-month consensus price-target is ho-hum, coming in at $80 — a 10% premium to yesterday’s close.
Options traders, meanwhile, appear to be a bit more optimistic. Currently, the August/September put/call open interest ratio for WMT rests at 0.69, with calls easily outnumbering puts among near-term options. This ratio rises slightly to 0.74 when we look at just August’s open interest configuration, indicating a bump in skepticism concerning Walmart’s earnings.
Click to Enlarge Overall, August implieds are pricing in a potential post-earnings move of about 4% for WMT stock. This places the upper bound at $75.36, while the lower bound lies at $69.64.
Technically, the path of least resistance for WMT appears to be higher. WMT stock is building support in the $71-$72 region, with recent price action pulling the stock’s 10- and 20-day moving averages into a bullish cross.
WMT is currently perched on its 50-day trendline, and a breakout above this moving average could create a short-term period of buying.
2 Trades for WMT Stock
Call Spread: With the bar clearly set low for Walmart earnings, and Wall Street in a holding pattern, there is plenty of opportunity for the company to offer up an earnings surprise. As such, traders looking to bet bullish on WMT ahead of earnings may want to consider a September $72.50/$75 bull call spread.
At last check, this spread was offered at 85 cents, or $85 per pair of contracts. Breakeven lies at $71.65, while a maximum profit of $1.65, or $165 per pair of contracts, is possible if WMT closes at or above $75 when September options expire.
Put Sell: With WMT chart congestion being what it is for the stock, and China now presenting some significant issues internationally, there is the possibility for the shares to continue their consolidation period for the intermediate term. In this case, an Aug $69 put sell may make sense. At last check, the Aug $69 put was bid at 32 cents, or $32 per contract.
On the upside, you keep the premium received as long as WMT stock closes above $69 when August options expire at the end of next week. On the downside, should WMT trade below the sold strike ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $69 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
