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How may Walmart's fiscal Q4 earnings affect its share price?


17 February 2021

The largest retailer in the US is due to announce its latest quarterly results before US markets open on Thursday, 18 February. In the lead up to the earnings announcement, Walmart’s share prices have breached the resistance that had been offered by its 50-day simple moving average (SMA). Walmart’s share prices must climb back above its January high of $149.77 in order to send a strong message to markets that it can arrest its downward trend from the past couple of months.

With its 50-SMA is now threatening to cross below its 100-day counterpart, this stock is in need of a positive catalyst to prevent a significant widening of the 4.67% gap from its highest-ever closing price of $152.79 which was registered on 30 November.

What are analysts expecting for Walmart’s Q4 results?

For the three months ending 31 January, markets are expecting a 4.7% year-on-year growth to Walmart’s top line, even as quarterly revenue moves closer to that psychologically-important $150 billion mark. Its earnings per share (EPS) for the period is slated to come in at $1.50, which would mark an 8.3% increase compared to the fourth quarter of its 2020 fiscal year.

Same-store sales in the US may have increased by 5%, which is about half of the growth seen in its fiscal first quarter (February-April), as the pandemic tailwinds taper off.

A digital focus amid the pandemic

Walmart’s e-commerce sales are expected to have surged by 66%, as the retail behemoth focuses on its omnichannel push. With the pandemic having driven consumers to purchasing their groceries online, coupled with shoppers being more budget-conscious amid the economic uncertainty, that should serve as a major boost to its digital revenue streams. That should help propel Walmart’s net income for its entire 2021 fiscal year to a record high of $17.9 billion for the 12 months ending 31 January.

How do Walmart stocks tend to react on earnings day?

Market participants are already pricing in a single-day absolute move of 4.06% for Thursday. Over the past decade, the stock has averaged a 3.08% absolute move (either upwards or downwards) on earnings day. However, note that Walmart’s stock has fallen after 4 out of the past 5 earnings announcements, suggesting that shareholders tend to indulge in some profit-taking on the day.

What other key factors/events are moving Walmart’s share price?

The sale of TikTok’s US operations appears to have hit a snag, after the Biden administration said that the deal is still being reviewed. The plan was for a group which includes Walmart to make the acquisition, allowing the mega retailer to leverage on TikTok’s user base and boost Walmart’s digital reach to consumers (imagine buying groceries via social media). Should this plan be officially declared dead, that could prompt the unwinding of some of Walmart’s gains, as markets dampen their optimism surrounding the retailer’s social-media synergies.

The Department of Justice’s lawsuit against Walmart regarding alleged opioid dispensing violations may result in a financial settlement totalling hundreds of millions of dollars, even though the DOJ is seeking civil penalties in the billions. For context, back in December, the US government accused Walmart of contributing to the opioid crisis by unlawfully dispensing and distributing prescription opioids via Walmart’s 5000 in-store pharmacies. This nationwide lawsuit comes on top of the more than 2,000 suits brought by states, cities, and counties that are contending with the fallout of the opioid crisis. The risk of such a financial hit may dampen the stock’s upside, even as observers await the trial’s commencement, which is slated for October 2021.

Although the conclusion to either the TikTok acquisition or DOJ lawsuit appears far off at this juncture, it could still cast a cloud over Walmart’s share prices in the interim. Walmart bulls are likely to focus on the company’s fundamentals, especially its push into the digital and fintech realms, in order to keep the stock’s uptrend intact.

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