Retail giant Walmart can still provide good value
Bobby Raines 11/11/2013
There are lots of ways to measure the health of the economy.
You can measure, employment, unemployment, business spending,
consumer credit, consumer spending… You get the idea. Corporate
earnings are also frequently considered when people try to
determine what kind of shape the economy is in.
) was once the bellwether at the start of earnings season. Demand
for aluminum is a good way to gauge how healthy the economy is
how the thinking went. Other people have pointed to lines in
specific earnings reports. Dupont's (
) production of titanium dioxide, which is used in sunscreen,
paint, and a whole host of other applications has also been
considered a good indicator of the health of the economy.
As our economy has shifted from one focused on industrial
output to one of services and consumption, those measures have
faded as worthwhile things to focus on. Alcoa was recently
removed from the Dow Jones Industrial Average, and DuPont is
selling its titanium dioxide business.
If I had to pick just one company to try to gauge the health
of the economy, I'd probably point to Walmart (
). As the nation's largest retailer, as well as one of the
largest employers, Walmart is probably a better indication of how
the average consumer is doing than any other single company.
The big-box retailer is ubiquitous and almost everyone
ventures into one at least occasionally. Given the company's
status as the nation's largest seller of groceries, Walmart is a
pretty regular fixture in the lives of a huge number of
So what is the expectation for the retail giant's upcoming
earnings? Analysts currently expect $1.13 per share on $116.75
billion in revenue, which compares to $1.08 per share on $113.93
billion in the same quarter of 2012. Those numbers aren't
predicting incredible growth, but there is growth there, which is
significant for a company of Walmart's size and maturity.
Another sign that should be encouraging for investors is that
the company isn't content to stand pat with the strategy that
helped it get so large in the first place. Walmart is making a
big push to expand its online sales. The company is also
experimenting with smaller stores, which should help it open more
locations closer to consumers, similar to
the strategy that has been successful for Dollar
The stock has struggled recently as the company missed
earnings estimates in two of the last four quarters, but the
company (and the analysts who make those estimates) likely have a
better handle on sales and earnings this time around.
The stocks has bounced from near the $72 level each of the
last two times it has fallen, so that may be a good point to set
up an options trade. The 70/72.50 bull-put credit spread
currently yields a credit of about 23 cents, which is a 10.13%
return, or 54.39% on an annualized basis. Traders with this
position get a full profit so long as the stock closes above
$72.50 at January expiration.