NEW YORK (TheStreet) - The S&P 500 ETF (SPY) - Get Report is down just 0.1%, but the main focus is on Wal-Mart (WMT) - Get Report . Shares of the retailer are down a whopping 9.5% following the company's bombshell of an announcement regarding its long-term guidance from its analyst meeting.
Management predicted flat revenue growth in 2016 due to currency headwinds, and reiterated its 2016 EPS guidance of $4.40 to $4.70. However, the 2017 outlook is where things turned dismal, with the company looking for a 6% to 12% hit to EPS due to investments in e-commerce and higher wages (75% of the predicted decline in EPS is due to wage hikes). In 2018, management foresees flat EPS growth, and finally 5% to 10% EPS growth in fiscal 2019. The company expects to generate $80 billion in cash over the next three years, and therefore is instituting a $20 billion share buyback.
How can the company justify so large a buyback when its core strategy clearly isn't working? That's what TheStreet's Jim Cramer, co-manager of the Action Alerts PLUS portfolio, wanted to know.
He criticized CEO Doug McMillon, who had earlier appeared on Wednesday's segment of "Squawk Box," for not saying anything at that point that might soften the blow of what management was about to tell investors. "This is one of the more bush-league things I've ever seen," Cramer said.
Wal-Mart has a poor selection of inventory, and consumers simply don't want to shop there anymore. Instead, they are spending their money at outlets such as Target (TGT) - Get Report , Amazon (AMZN) - Get Report and Costco Wholesale (COST) - Get Report -- the last of which is a holding in the Action Alerts PLUS portfolio that Cramer manages.
Take Costco, for an example. It pays its employees far above minimum wage and has a generous benefits package, yet it's one of the most profitable retailers. Conversely, Wal-Mart pays very poorly to improve its gross margins.
That choice has been an "abysmal failure," Cramer said, adding that Costco's employees care immensely about doing a good job and taking care of the customer. Wal-Mart is finally making an effort to improve in this respect, but right now, it's not enough. Its investments in e-commerce aren't working either. Consumers don't want to order online and pick up their purchases in stores -- which is one of Wal-Mart's strategies. No, they want to order online and have items delivered to them in a timely manner, Cramer explained.
The company has a strong balance sheet and pays a nice dividend, but its current strategy is mess and management's credibility is certainly being called into question, he said. Now is not the time to buy the stock, he concluded: Investors should wait until after the holidays, and then see how Wal-Mart is doing.
This stock has been in steady decline all year, falling 33% from its 52-week highs, according to Josh Brown, CEO and co-founder of Ritholtz Wealth Management. The stock is now trading at its lowest levels since 2012, giving back three years worth of gains for long-term investors.
Wal-Mart has big problems and they're going to take a great deal of time to fix, Brown said. Short-term investors will not be rewarded for buying the stock at current levels.
Fundamentally, Wal-Mart is not in a good position, added Jim Lebenthal, CFO and CIO of Lebenthal & Company. Wal-Mart thrives during recessions and poor economic environments, he said, but in stronger economic environments, shoppers prefer Target and Costco.
Mike Mayo, the highly respected bank analyst at CLSA, says JPMorgan remains his top pick in the industry, though it just reported some of the more disappointing results so far compared to its peers. The stock is incredibly attractive near $60, he said. Although the valuation is higher than that of Bank of America, JPMorgan generates a higher return on equity, he explained.
The company's balance sheet continues to improve and it still has 60% of its $5 billion cost-savings plan to tackle. Higher interest rates would be nice, Mayo acknowledged, but JPMorgan will continue to benefit as long as its focused on cutting costs too.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.