Many investors probably thought that the sudden drop in oil prices would be great news for retailers across the board. This was especially supposed to be the case for retailers targeting the low end as consumers here would really feel the benefit of slumping oil prices.
However, for many this hasn’t really been the case as most of the gas savings have gone right into checking accounts and little has trickled down into discretionary purchases. This reality has hit shares of the biggest retailer in the country, Wal-Mart (WMT), hard as shares have been under pressure for the Arkansas-based giant.
In fact, shares of WMT are off close to 10% so far in 2015, easily underperforming the more or less flat return for the S&P 500 in the same time period. This is especially poor when you consider that the broad retail ETF (XRT) is actually outperforming the S&P 500 so far this year, putting even more distance between Wal-Mart and the rest of the industry.
Outlook
While doing poorly in what is otherwise a solid economic environment is obviously a troubling trend, investors should also note that things aren’t exactly shaping up well for WMT as we head into the summer months either. If anything, analysts are looking for Wal-Mart’s issues to continue at least based off of recent earnings estimate revisions.
Not a single estimate for either the current quarter or the current year in the past 60 days has gone higher for WMT stock. Instead, investors have seen eight move lower in the past two months for the current quarter, while 16 have gone lower for the current year.
Wal-Mart earnings are actually expected to contract this year when compared to the previous fiscal year, dropping by just under 4%. This actually marks a dramatic shift for WMT from just 60 days ago when the company was expected to post modest EPS growth on the year.
The following year isn’t looking much better either as analysts have universally agreed that WMT’s prospects are going to remain sluggish. Not a single estimate in the past 90 days for this time frame has gone higher, while the consensus estimate has slumped from $5.63/share to just $5.13/share as well.
Clearly, analysts are anticipating WMT weakness to continue and that there is little prospect of a quick turnaround. After all, if WMT cannot capitalize off of this relatively rosy environment, what chance do they have if oil prices go back higher? For this reason, we have assigned WMT a Zacks Rank #5 (Strong Sell) and are anticipating weak trading to continue for this retailing giant.
Other Picks
Fortunately the economic situation for the retail space is actually quite promising overall as the retailer-discount space is currently just outside the top 25% in terms of the industry rank. Plus, not a single stock in this segment has a Zacks Rank #5 (Strong Sell), so much better prospects all around.
One that looks especially intriguing right now is Gordman’s Stores (GMAN) as this stock was just upgraded to a Zacks Rank #1 (Strong Buy) from #2 territory a week ago. Plus, with expected EPS growth of 69% this year, the company finds itself in a much better position than WMT as we head into what could be a rocky summer for retail stocks.
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WAL-MART STORES (WMT): Free Stock Analysis Report
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