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Michael Fowlkes' Analyst Insights

Options and ETF Analyst Writer
Michael Fowlkes
Author Bio


Wal-Mart to react to retail sales report

Michael Fowlkes

3/10/2018 12:54 PM

What's Happening

Retail giant Wal-Mart (WMT) has been trending lower over the last month, after posting strong gains in 2017. The company reported disappointing earnings in February that has put pressure on the stock, which is currently down 11.0% on the year, but could start to recover on the heels of an upbeat retail sales report for February.

Technical Analysis

WMT was recently trading at $87.78, down $22.20 from its 12-month high and $18.45 above its 12-month low. Overall technical indicators for WMT are bearish and the stock is in a downward trend. The stock has recent support above $87.25, and recent resistance below $93.75. Of the 23 analysts who cover the stock, 10 rate it a “strong buy”, and 13 rate it a “hold”. WMT gets a score of 46 from InvestorsObserver’s Stock Score Report.

Analyst's Thoughts

Leading up to Wal-Mart’s recent quarterly report, investors were very bullish on the stock. The company has done a fantastic job in recent years in growing its e-commerce business and has managed to position itself as the strongest competitor to (AMZN), who still dominates online retail sales. WMT has not only improved its online business, but investments in its employees and stores have resulted in a better customer experience that is helping the company grow sales its brick and mortar locations as well. Sales last quarter were much stronger than expected, but the company came up a little short on the bottom line, and with shares already priced for perfection, it is not surprising that profit taking came in and erased some of the stock’s recent gains. February’s retail sales report will be released Wednesday, March 14, and a strong reading should breathe some life back into WMT and put the stock back in an upward trend. Economic conditions remain upbeat, particularly in the jobs market, which should lead to stronger sales for all the major retailers. President Trump’s recent tax reform should also result in more discretionary income in consumer’s pockets, which will also help boost retail sales. Expect a good retail report, and WMT to find a solid level of support and begin to move higher.

Stock Only Trade

If you're looking to establish a long stock position in WMT, consider buying the stock under $87.75. Sell if it falls below $79.00 or take profits if it gets to $101.00.

Bullish Trade

If you want a bullish hedged trade on the stock, consider an April 75/80 bull-put credit spread for a 25-cent credit. That's a potential 5.3% return (45.7% annualized*) and the stock would have to fall 8.6% to cause a problem.

Bearish Trade

If you want to take a bearish stance on the stock at this time, consider an April 95/100 bear-call credit spread for a $0.25 credit. That's a potential 5.3% return (45.7% annualized*) and the stock would have to rise 8.5% 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 an April $90 covered call. Buy WMT shares (typically 100 shares, scale as appropriate), while selling the April $90 call for a debit of $86.30 per share. The trade has a target assigned return of 4.3%, and a target annualized return of 37.9% (for comparison purposes only). 


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