Wal-Mart Stores Inc. (NYSE:WMT) will report first-quarter earnings before the opening bell Tuesday. And if you have high expectations or even the slimmest hope of a top and bottom line beat, good luck — its not likely to happen.
U.S. retail sales didn’t budge in April, flatlining against predictions of 0.2% growth. And the month-over-month number appears even worse, given that March data was revised upward to a show 1.1% gain versus the prior reported 0.9% increase.
It’s for this reason that shares of Macy’s, Inc. (NYSE:M), which missed first-quarter earnings and revenue estimates Wednesday, got crushed before rebounding later in the week.
And you shouldn’t have been surprised that shares of Kohl’s Corporation (NYSE:KSS) was taken to the woodshed Thursday, down 12% after the retailer reported weak revenue in the first quarter. All told, unless you’re playing a name like Home Depot Inc (NYSE:HD), retail stocks are out of season.
WMT stock closed Friday at $79.24 and has struggled so far in 2015, down almost 8% against a 2% gain for the Dow Jones Industrial Average. Growth has been hard to come by.
That WMT stock trades at a price-to-earnings ratio of 16 suggests that expectations are low, compared to a P/E of 20.6 for Target Corporation (NYSE:TGT). Even the SPDR S&P Retail ETF (NYSE:XRT), which is up almost 3% in 2015, trades at P/E of 19.
This means if WMT stock traded on par with either TGT stock or the XRT, WMT stock would be valued today at around $100 per share, not $79. In other words, WMT stock is discounted by about 25% to the rest of the market, when factoring a multiple of 20 to last year’s earnings of $5.07 per share. The market disrespects WMT for how disappointing its growth has been.
But in case you haven’t noticed, this isn’t your father’s Walmart. And if you have an older brother, it’s not his Walmart, either. Walmart is trying new things, including its new subscription shipping service due out later this summer. Walmart will offer unlimited shipping for $50 per year, undercutting the $99 per-year rate offered by Amazon.com Inc. (NASDAQ:AMZN) Prime service.
The good thing is, it doesn’t matter if this shipping service works. Walmart, the price leader, has become more innovative. Recall, in April, WMT raised its starter level worker pay to at least $9 an hour. And WMT has promised to raise its wages to at least $10 per hour by next February.
This is going to cost money, yes. But all investments cost something. And over time, these type of investments can pay huge dividends. Costco Wholesale Corporation (NASDAQ:COST) serves as a perfect example.
From that standpoint, WMT stock, especially with its annual dividend yield of 2.4%, continues to be a solid buy-and-hold candidate — regardless of what the numbers say Tuesday. In six to 12 months, they won’t matter to WMT stock.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
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