Michael Fowlkes' Analyst Insights
Options and ETF Analyst Writer
August 14, 2017 Wal-Mart scheduled to report second-quarter results
Mega retailer Wal-Mart (WMT) is expected to report its second-quarter numbers on August 17. The company will post its quarterly numbers before the market open, with the consensus calling for earnings of $1.06 on sales of $122.72 billion. During the same period last year the company earned $1.07 on sales of $120.16 billion, and the stock has appreciated 17.6% on the year.
WMT was recently trading at $80.75, down $1.24 from its 12-month high and $15.47 above its 12-month low. Technical indicators for WMT are bullish and the stock is in a strong upward trend. The stock has recent support above $75.50 and recent resistance below $82.00. Of the 22 analysts who cover the stock, 10 rate it a “strong buy”, 10 rate it a “hold”, and two rate it a “strong sell”. The stock receives S&P Capital IQâ€™s 5 STARS “Strong Buy” ranking.
Wall Street has taken a very bullish stance on Wal-Mart over the last year, as the company's investments in e-commerce and boosting employee morale have resulted in rising online sales, and improved customer satisfaction in its stores. While Amazon (AMZN) has devastated a lot of retailers, Wal-Mart has managed to compete better than most, and if it can continue to boost its online sales the market will continue to push shares higher. Last quarter the company topped estimates on both the top and bottom line, and earnings were up 2.0% year over year. The company's recent investments are starting to pay off, and analysts expect to see the company grow earnings by 5.9% per annum over the next five years as e-commerce sales continue to improve. The street has a whisper number of $1.08 for the quarter, slightly higher than the consensus, suggesting analysts expect another set of strong numbers. Pay attention to updates on the company's e-commerce business, as that will be a major driving force int eh company following the report.
Stock Only Trade
If you're looking to establish a long stock position in WMT, consider buying the stock under $80.75 Sell if it falls below $72.50 or take profits if it gets to $93.00.
If you want to set up a bullish hedged trade on WMT, consider an October 67.50/72.50 bull-put credit spread for a 30-cent credit. That's a potential 6.4% return (33.3% annualized*) and the stock would have to fall 9.9% to cause a problem.
If you want to take a bearish stance on the stock at this time, consider an October 87.50/90 bear-call credit spread for a 20-cent credit. That's a potential 8.7% return (45.3% annualized*) and the stock would have to rise 8.6% to cause a problem.
Covered Call Trade
If you like the stock, but wish to lower your cost basis on a new position, you may want to consider a December $80.00 covered call. Buy WMT shares (typically 100 shares, scale as appropriate), while selling the December $80.00 call for a debit of $76.85 per share. The trade has a target assigned return of 4.1%, and a target annualized return of 12.0% (for comparison purposes only).
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