When a company as hefty and omnipresent as Walmart Store Inc. (WMT) slips or soars, corporate America reacts. On Tuesday, the stock sank by 10% after a six-day winning streak, following a dicey fourth-quarter earnings report.
With those events in mind, what's the next move for investors?
"On a near-term basis, we think [the] stock may end down -4.5% and our call is that we would use weakness beyond a -5% as a buying opportunity ...," wrote Oliver Chen, an analyst for Cowen in a research note published on Tuesday, in which Walmart was given a neutral rating. Cowen added that Walmart is well-positioned because of a healthy job market and wage growth for consumers, and that it's a bargain leader that can secure favorable prices from vendors, due to its size.
Cowen also cited the company's attractive fundamentals, including a dividend yield of 2% and a free cash-flow yield of 7%. The company's inventory is also well-controlled, the analyst said.
On Wednesday, the stock closed down nearly 3% at $91.52.
In Tuesday's earnings report, Walmart also reported an earnings of $1.33 a share compared to the projected $1.37 a share. Same-store sales and revenue, however, beat analyst estimates.
Same-store sales rose 2.6%, compared to the expected 2.2% growth rate, and revenue reached $136.3 billion versus the expected $134.9 billion. The company cited restructuring charges, hindrance from discontinuing certain real estate projects and loss on debt matters as among the negative impacts on past quarter earnings.
Stifel analysts, led by Mark S. Astrachan, gave the retailer a hold rating and wrote that they think it's "reasonable" for the company to focus on "meaningful investment," such as further price reductions, wage increases and IT spend. "... today's [Tuesday's] selloff, in part, reflects investor expectations that reset investment levels were sufficient to drive both bricks-and-mortar and e-commerce growth."
Still, Walmart has become known for surprising investors negatively in recent years. In late 2015 more than a year after CEO Doug McMillon took the helm, Walmart cut its earnings outlook due to higher wages and spending on e-commerce and lower prices. Then earlier this year, it surprised investors again by closing 63 Sam's Club stores. And now, the surprise earnings miss and tepid outlook.
Investors may want to give the stock a rest for now.
"We found it shocking that Walmart cut its 2018 earnings per share guidance (provided in October) for positive mid-single-digit growth. (Excluding the tax rate benefit, guidance is now for flatish EPS indicating that we're going on seven years without any earnings growth.)," wrote John Zolidis, founder and president of Quo Vadis Capital Inc.
He hedged by saying the "business is good" as Walmart continues to take market share, as evidenced by the company's guidance of at least positive 2% in comps for fiscal year 2018, and added that he expects the stock to recover.
Fear, worry or patience? You decide.
Follow us on YouTube (and subscribe!) to get your Morning Jolt!