If I were lucky enough to own it, Walmart (NYSE:WMT) would be a name I’d consider selling even though WMT stock had a great year.
Your demand, like that of Ebenezer Scrooge in A Christmas Carol, can help keep the whole economy ticking over (that Christmas goose won’t sell itself), but if you don’t want to go into debt to do it you might want to consider selling some stocks that have done well for you this year. There’s no shame in taking profits for reinvestment.
Walmart announced earnings on November 17. The numbers were spectacular.
Net income was $5.135 billion, $1.81 per share, on revenue of $134.7 billion. Best of all, e-commere was up 79% and Walmart U.S. sales were up 6.4% year over year. Analysts were over the moon.
So why sell into expected strength?
A Closer Look at WMT Stock
Start with the law of large numbers. Walmart had sales of $523 billion last year. It’s on pace to do $542 billion. That $19 billion gain represents less than 4% growth. Say it has a spectacular Christmas with sales of $148 billion, a total of $550 billion. That’s 5.4% growth. Large numbers are hard to shift.
Now look what people are paying for mid-single digit growth. Walmart opens for trade post-earnings at around $150, a market cap of nearly $430 billion.
That would be nearly 80% of even the high sales estimate. The 54 cent per share dividend, once seen as generous, now yields barely 1.4%. Shares are up 13% this year, which is less than half its annual gain over the last five.
The company is doing great. The investors? Not so much, again because big numbers are hard to shift.
What the Bulls Say About WMT Stock
Despite all this, the bulls have plenty to be happy about.
As many as 19 million families may have already joined Walmart+, the company’s answer to Amazon (NASDAQ:AMZN) Prime. It costs $98 per year, so the bulls see up to $1.86 billion in “free” money, although Walmart must build out its infrastructure to meet the promise.
Placer.ai says Walmart visits have been rising steadily since the pandemic started, especially at Sams Club warehouses, where tickets are bigger. Time spent per visit is also rising, so Walmart tickets may also be growing.
Walmart is also becoming a big ad buy for its suppliers. It’s using its data to make ads an income stream, as supply is already an income stream, since Walmart usually pays for goods weeks after they’re sold.
Of the 27 analysts following Walmart, 21 now have it on their buy lists.
Sell Into Strength?
Remember how you make money on stocks? Buy low, sell high. Walmart is high. The average one-year price target from those bullish Walmart analysts is $150.78.
While Walmart is advancing in the U.S., it’s retreating elsewhere. The company is selling its Seiyu operations in Japan, a department store chain often found near train stations, for $1.6 billion. The buyers are Rakuten (OTCMKTS:RKUNY) and KKR (NYSE:KKR).
As the pandemic returns with a vengeance, Walmart is once again metering how many people come into the store at once. The aim is to run at 20% of capacity. There is also evidence shoppers are returning to panic mode, buying out supplies of things like toilet paper.
The Bottom Line
Christmas may not be as merry as Walmart gets, which is why the shares fell overnight, after the earnings came out.
Getting to 5% growth this Christmas means sales of nearly $148 billion, up from $141 billion last year. Despite management’s best efforts, and again they’re a great company, the virus may just say no to that.
Failure to hit the target will hit the shares. As the pandemic eases, investors will seek greater rewards, and be willing to take more risk in 2021. This may be as good as it gets for some time.
At the time of publication, Dana Blankenhorn had long positions in AMZN.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn.