Chart of the Day – WMT: Technicals & Valuation Stretched?

by Dan May 13, 2014 2:10 pm • Commentary

Walmart will report their fiscal Q1 results Thursday morning prior to the open. The options market is implying a one day move of about 2%, which is essentially in line with the 4 and 8 qtr avg.

Heading into the quarter, I think it is safe to say that expectations are not particularly high given all of the blame that bad winter weather received for weak results from a whole host of retailers over the past few months.  Analysts expect earnings to rise only 1% year over year, following last qtr, its first quarterly eps decline since Q4 2009.  The low expected growth juxtaposed to the stocks PE multiple, at 5 year highs, which could cause some investors to take pause if WMT does in fact guide down for their second consecutive quarter in 2014:

WMT 5yr PE chart from Bloomberg
WMT 5yr PE chart from Bloomberg

While the stock is unchanged on the year, it is up 9% from the February lows, and less than 2% away from the 2014 highs.  The stock is likely to see a good bit of resistance at the 52 week and all time highs made late year at $81.37, which is basically inline with the implied move.  On the downside, the March breakout level of about $76 should serve as decent near term support, which is also a tad below the stock’s 200 day moving average at $76.37:

WMT since Jan 1st 2013 from Bloomberg
WMT since Jan 1st 2013 from Bloomberg

Perhaps more telling than the result itself will be the stock’s reaction.  Many “value” mega caps in 2014 have reported lackluster results, but the shares have quickly found a bid post-earnings as investors continued their rotation into what are perceived as safer names.  The reaction after IBM earnings last month is a good example.  In the case of WMT, while the trailing 12 month P/E is at a 5 year high, it is still in the mid teens, and WMT’s business, while stagnant, is hardly folding up anytime soon.  If a weak number elicits no demand on the other hand, maybe that’s a sign that the recent large cap value rotation has run its course.

 

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