Walmart (WMT) Could Hit New Highs

Dow component Walmart Inc. (WMT) reports third quarter 2020 earnings on Tuesday, Nov. 17, with analysts looking for a profit of $1.19 per share on $131.5 billion in revenue. If met, earnings per share (EPS) will mark almost no profit growth compared to the same quarter in 2019. Walmart sold off less than 1% despite beating second quarter top- and bottom-line estimates in August but recovered quickly, with share prices hitting an all-time high at $151.33 in early September.

Key Takeaways

  • Walmart stock is trading close to September's all-time high, in perfect position for a post-news breakout.
  • The stock has risen 25% so far in 2020.
  • Volume indicators reveal a steady flow of buying interest, despite sideways price action.

Walmart stock topped out just one day after the official rollout of Walmart+, its membership challenge to Amazon.com, Inc.'s (AMZN) Prime. Under Walmart's membership program, 2,700 stores now offer unlimited free delivery as fast as same day on retail and grocery items, along with a menu of services that include fuel discounts. The initial price of the service has been set at $98 per year, or $12.95 per month. The company intends to expand the program with additional offerings in coming months.

The stock has risen nearly 25% so far in 2020, underpinned by pandemic-driven market share gains. The partnership with Oracle Corporation (ORCL) for the American assets of TikTok generated excitement during the quarter, but the transaction is mired in legal actions and international intrigue, with China unlikely to grant permission. The holding pattern since September makes sense given this impasse, but Walmart doesn't need the app to keep its elite retail status.

Wall Street consensus has been highly bullish on Walmart stock throughout 2020, with a "Strong Buy" rating based upon 21 "Buy," 6 "Hold," and 0 "Sell" recommendations. Price targets currently range from a low of $130 to a Street-high $175, while the stock opened Friday’s session about $2 below the median $152 target. It's now trading less than $3 below the all-time high, with strong quarterly metrics raising the odds for a fresh breakout.

Market share is the percent of total sales in an industry generated by a particular company. Market share is calculated by taking the company's sales over the period and dividing it by the total sales of the industry over the same period. This metric is used to give a general idea of the size of a company in relation to its market and its competitors.

Walmart Weekly Chart (2012 – 2020)

The stock broke out above the 2000 high at $70.25 in 2012 and tested new support for more than two years before ejecting into a brief uptrend that failed at the start of 2015. The developing paradigm shift from brick-and-mortar retail stores into Amazon and e-commerce hit the front pages at that time, dropping Walmart stock into a vertical decline that ended at four-year low in the mid-$50s at the end of the year.

The 2016 acquisition of Jet.com signaled the start of better times, lifting the stock to a new high at the end of 2017. The rally paused in the first quarter of 2018, with investors worried about profit margins during a trade war, ahead of a fresh 2019 breakout that stair-stepped into September 2020's all-time high above $150. Price action has been consolidating in a triangular pattern since that time, while rising accumulation indicates that new investors are coming on board.

Weekly and monthly relative strength indicators are grinding through buy cycles despite sideways price action, adding twin tailwinds that should support higher prices into year end. However, it isn't wise to expect a big momentum-fueled advance because this Dow component is a relatively slow mover paying a 1.46% dividend yield, suggesting a rally into the $160s rather than a moon shot toward $200.

Profit margin is one of the commonly used profitability ratios to gauge the degree to which a company or a business activity makes money. It represents what percentage of sales has turned into profits. Simply put, the percentage figure indicates how many cents of profit the business has generated for each dollar of sale.

The Bottom Line

Walmart heads into next week's earnings with a brisk tailwind that predicts even higher share prices.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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