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Will Walmart (WMT) Miss Earnings Estimates? - Analyst Blog

Posted: 11/13/2013 10:50:00 AM
Referenced Stocks: BBY;HGG;KR;WMT

Retail giant Wal-Mart Stores, Inc ( WMT ) is set to report its third-quarter fiscal 2014 results on Nov 14 before the market opens. Last quarter, it posted in-line results. Let's see how things are shaping up for this announcement.

Factors to Consider this Quarter

A sluggish global retail sales environment has been hurting the retail giant's sales and profits since the past few quarters. Restrained consumer spending in the U.S., which emanated from the recent hike in payroll taxes and higher gas prices have been hurting the top line. Besides higher taxes, weak pay and a tepid rate of hiring is also curbing consumer spending. We believe the gloomy consumer spending environment will not improve too much in the next few quarters. The economic strains in the U.S. and abroad are likely to pressurize its low-income shoppers for the rest of the year.

Due to weaker-than-expected performance in the first half of 2014, Walmart sharply lowered its net sales and earnings growth guidance for fiscal 2014 at the second quarter conference call. Moreover, the challenging sales environment, inventory concerns as well as currency headwinds are expected to hurt second half sales as well.

Earnings Whispers?

Our proven model does not conclusively show that Walmart is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, #2 or #3 for this to happen. That is not the case here as shown below.

Negative Zacks ESP: The Most Accurate estimate stands at $1.12 per share while the Zacks Consensus Estimate is higher at $1.13. That is a difference of -0.89%.

Zacks Rank #3 (Hold): Walmart's Zacks Rank #3 (Hold) when combined with a negative ESP makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies in the retail and wholesale sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Best Buy Inc ( BBY ), Earnings ESP of +9.09% and a Zacks Rank #1 (Strong Buy).

Kroger Co. ( KR ), Earnings ESP of +1.89% and a Zacks Rank #3 (Hold).

hhgregg, Inc ( HGG ), Earnings ESP of +2.08% and a Zacks Rank #3 (Hold).

BEST BUY (BBY): Free Stock Analysis Report

HHGREGG INC (HGG): Free Stock Analysis Report

KROGER CO (KR): Free Stock Analysis Report

WAL-MART STORES (WMT): Free Stock Analysis Report

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