The world’s largest retailer, Wal-Mart Stores Inc. (NYSE:WMT), will step into the earnings limelight after the close on Monday, and the quarterly report could be a make or break for WMT stock. Currently, Wall Street isn’t looking for much from Wal-Mart, with earnings expected to fall from $1.10 per share a year ago to $1.04, and revenue seen rising only 1.2% year-over-year.
The prognosis for an earnings beat isn’t that great. During the past four quarters, Walmart has only topped Wall Street’s expectations once, matching twice and missing once. All the same, EarningsWhisper.com places Wal-Mart’s first-quarter whisper number at $1.05 per share, a penny ahead of the consensus.
The bullish ruminations from Wall Street end there, however. Thomson/First Call reports that only eight of the 32 analysts following the stock rate it a “buy” or better. Additionally, the 12-month price target of $85 represents a meager premium of only about 7.8% to yesterday’s close. While there is room for improvement, Wal-Mart still has a lot of catching up to do in order to impress the analyst community.
On the options front, traders appear to be of split opinions when it comes to WMT stock’s outlook. On one hand, the May/June open interest ratio arrives at a mediocre reading of 0.72, with puts gaining in popularity during the past several sessions. On the other hand, the weekly May 22 series put/call open interest ratio comes in at a bullish 0.38, with calls nearly tripling puts among short-term options.
Click to Enlarge Overall, weekly May 22 series implieds are pricing in a potential post-earnings move of about 3.2% for WMT stock. This places the upper bound at $81.03, while the lower bound lies at $75.97.
Technically, there are extenuating factors that could come into play for WMT. The stock has breached former support at the $80 level. This region capped WMT stock from 2012 through 2014. Furthermore, the equity’s weak price action in 2015 — down more than 10% year-to-date — has drawn WMT’s 50- and 200-day moving averages into a bearish cross. For technical traders, this formation suggests that additional losses are on the way for WMT.
2 Trades for WMT Stock
Put Spread: With the stock struggling and technical indicators pointing lower, WMT’s future relies heavily on an earnings beat out of Wal-Mart on Monday, and I just don’t see that happening. Those traders looking to bet against the stock heading into next week’s quarterly report might want to consider a Jun $75/$77.50 bear put spread.
At last check, this spread was offered at 65 cents, or $65 per pair of contracts. Breakeven lies at $76.85, while a maximum profit of $1.85, or $185 per pair of contracts, is possible if WMT closes at or below $75 when June options expire.
Call Spread: Stock reactions following earnings reports are nothing if not inconsistent, and it is entirely possible that WMT could rally on an in line report — especially since the stock is a favorite among institutional traders. As such, those traders willing to bet on a bounce in WMT stock might want to try out a weekly May 22 series $79/$81 bull call spread.
At last check, this spread was offered at 57 cents, or $57 per pair of contracts. Breakeven lies at $79.57, while a maximum profit of $1.43, or $143 per pair of contracts, is possible if WMT closes at or above $81 when May options expire at the end of next week.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.