Is Walmart Stock a Buy Ahead of the Mid-November Earnings Report?

Stocks to buy

With a market cap of $340 billion, Walmart (NYSE:WMT) hardly needs an introduction.  The retail giant is expected to report earnings on Nov. 14. Between now and that date, there might be some profit taking in Walmart stock. However, long-term investors may regard any weakness in stock price to go long Walmart shares. Here’s why.

Is Walmart Stock a Buy Ahead of the Mid-November Earnings Report?

Source: Jonathan Weiss /

On Aug. 15, when Walmart stock released Q2 results, the group once again showed strong sales with slight beats in earnings, revenue and same-store sales. Walmart currently operates through three segments: Walmart U.S., Walmart International and Sam’s Club.

Walmart’s total revenue came at $130.4 billion, an increase of $2.3 billion, or 1.8%.  Net income also increased to $3.61 billion, or $1.26 per share, beating forecasts of $1.22. And same-store sales were up 2.8% vs. 2.1% expected.

Net U.S. sales increased by 2.9% to $85.20 billion from $82.82 billion a year ago. Investors noted that the U.S. e-commerce sales grew 37%, mostly due to the strong growth in online grocery.

Walmart offered customers four consecutive days of savings to match those offered by Amazon’s (NASDAQ:AMZN) Prime Day in July. And that strategy has helped Walmart’s earnings.

Finally, revenue for Walmart International revenue increased by 3.3% in constant currency

During the earnings announcement, Walmart management also raised the outlook for the full year.

What to Expect from Walmart’s Q3

When Walmart reports Q3 earnings, analysts would like to see that the world’s largest retailer is continuing to build on the recent momentum in its core U.S. business, online operations and grocery sales.

Over the past decade, the retail industry has been undergoing major transformation. Historically brick-and-mortar strategies have been the norm. Yet as consumers want items faster and more conveniently, online retail has grown exponentially.

Meanwhile, despite its rock-solid financials, Walmart has at times been overshadowed by the growth of Amazon. And the WMT stock price has been punished as the company has not been able to compete with Amazon’s offerings and innovation.

However, in recent quarters WMT management has been more proactive in focusing on digital profitability, while keeping its brick-and-mortar business growing. In other words, the company is hoping that customers will find it increasingly convenient to shop at Walmart, be it in-store or online.

Therefore, as long as Wall Street sees that the positive omnichannel revenue momentum is on track, Walmart stock price likely to continue to please long-term shareholders.

Investors would also like to see that going forward, Walmart stock will not be adversely affected by continued U.S.-China trade wars.  About 10% of Walmart’s global sales are related to its business in China.

Although further escalation of the war of words and even more tariffs could further affect Walmart’s earnings negatively, it is likely that before long we will have a trade deal that will calm the nerves of businesses and investors. I believe that any tariff-related bad news is already baked into the Walmart stock price.

Run-up Over Recent Weeks

Year-to-date, WMT stock is up about 28% and the stock price has increased almost 22% over the past 12 months. Currently it is hovering around $119.35.

Its 52-week range has been $120.71 (Oct. 11, 2019) and $85.78 (Dec. 24, 2018).

If you are an investor who pays attention to technical charts, during most of the second half of this year, Walmart has traded within a range of $105-$120.

As a result of the recent impressive run-up of WMT stock in the past several weeks, short-term technical indicators have become somewhat overextended. Investors who pay attention to short-term oscillators should note that Walmart stock has become “overbought.”

Many investors who remember the stock market decline that happened in the last quarter of 2018 seem to be uncertain about this earnings season, and their expectations are somewhat subdued. Therefore, I expect the recent high of $120.71 to be an approximate resistance for WMT stock price until the next earnings release in mid-November.

Long-Term Investors Should Consider WMT Stock

A recent study by Robert McGee of Fayetteville State University compares Walmart’s sales to the gross domestic product (GDP), or a country’s annual market value of all final goods and services, of the world’s 50 largest nations. It concludes that “[i]f Walmart were a country, it would be ranked #24 in terms of size, slightly larger than Poland and slightly smaller than Sweden.”

Earnings season may bring increased volatility to the stock market, and I would not advocate bottom picking. However, given the group’s omnichannel retail strength, I find WMT stock to be a compelling buy candidate especially between $105 to $115. Toward the end of the year, the stock price can easily go and stay over $120.

Those who have benefited from Walmart’s 2019 gains may also consider taking some money of the table. Alternatively, they may consider hedging their positions with covered call that expire on Dec. 20.

By adapting such a strategy, investors can benefit from a rally by Walmart stock in the wake of the results. They can also have some protection from subsequent profit-taking.

Finally, income investors know that they can compound their returns through reinvesting dividends from high-yielding shares. Walmart has consistently paid dividends for over four decades. WMT’s current dividend yield is over 1.8%. Although there are other stocks that pay higher dividends, given that stability of Walmart’s earnings, it is another reason why Walmart shares should belong in a capital growth portfolio.  The company also has a history of increasing dividends regularly.

As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.

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