Welcome to the Stock of the Day. Everyone knows Wal-Mart (WMT) for its “Every Day Low Prices,” but shareholders didn’t bargain for a Q4 earnings report that would also send share prices lower at today’s open. But with warmer temperatures just around the corner and a new dividend hike, could this pullback be a buying opportunity?
Find out now.
Company Overview
Even though it started as a mom-and-pop operation in 1962, Wal-Mart has since grown into the largest public corporation by revenue. Although it is best known for its Walmart brand name, Wal-Mart is actually responsible for 55 brands of discount department stores across 27 countries.
Wal-Mart has the largest private workforce in the world; it employs over 2.2 million individuals across more than 10,800 locations worldwide.
Earnings Rundown
Wal-Mart reported mixed results for the fourth quarter. On the one hand, total sales climbed 1.5% year-over-year to $129.71 billion. However, analysts had forecast sales of $130.57 billion, so Wal-Mart posted a minor sales miss. A competitive retail environment and unfavorable currency exchange rates weighed on sales both home and abroad.
Meanwhile, net income fell 21% to $4.43 billion, or $1.36 per share. Adjusted earnings were $1.60 per share, which topped the consensus earnings estimate by a penny.
Future Outlook
The nail in the coffin was that Walmart management issued a weak Q1 earnings guidance of $1.10 to $1.20 EPS, below the $1.23 EPS consensus estimate. For fiscal 2015 the company forecasts earnings between $5.10 to $5.45 per share on 3% to 5% net sales growth. This is also below the Street view of $5.54 EPS on $493.06 billion in revenue.
Management tried to smooth over the weak forecast by hiking up the 2015 annual dividend by 2% to $1.92 per share. The dividend will be paid in four quarterly installments. But as I’ll discuss shortly, not even the stock’s 2.5% dividend could entice me to buy WMT shares, and here’s why.
Current Ratings
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. Institutional buying pressure for Walmart stock has eroded lately—as shown by its D-rated Quantitative Grade. This is very important because it suggests that WMT has a poor risk-to-return ratio. And on the fundamentals side, there is ample room for improvement.
Currently, Wal-Mart receives C- and D-ratings for seven of the eight metrics I graded it on, including sales growth and earnings growth. The sole exception is its A-rated return on equity. So WMT receives a C for its Fundamental Grade.
Bottom Line: As of this posting I consider Walmart stock a D-rated Sell.
Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website!
