Company background

Headquartered in the US, Walmart Inc. (WMT) is a multinational retail corporation, operating a chain of hypermarkets, grocery stores and discount department stores.

In fact, Walmart is the world’s largest company by revenue with its $550 billion reported for 2020. Moreover, the company is the largest employer in the world with its 2.2 million employees.  Walmart has managed to evolve from just being a traditional brick-and-mortar retailer to an omnichannel player. In other words, the company’s acquisitions of Bonobos, Moosejaw and Parcel, as well as its partnerships with Goldman Sachs and Shopify, and its delivery programs, such as Walmart+ and Express Delivery have kept on boosting the company’s revenues and improving its financial performance and market positioning. These actually help the company position itself well in the market and keep pace with the changing retail ecosystem, being able to stay competitive in relation to rivals like Amazon and Target. Walmart’s portfolio is very well diversified with all sorts of different products, such as groceries and cosmetics, electronics, home furnishings, health and wellness, apparel, entertainment products and others.


Financial performance and quarterly earnings results

Walmart has seen some decline in sales due to the coronavirus pandemic that led to an economic slowdown, which of course hit the company’s operations.

During the 4th quarter of 2020 the company incurred additional costs related to COVID-19. Yet, Walmart didn’t disappoint with its Q4 financial results and reported earnings of $1.34 per share, while the expectations were for $1.19. In fact, the company beat analysts expectations in all quarters during the pandemic times and delivered better than expected results in Q2, Q3 and Q4 of 2020, further proving its strong market presence and decent financial performance even during the economic slowdown caused by the coronavirus in the past year. By looking at the Q1 2021 financial results that have come out recently, the company delivered a bit worse than expected earnings, reporting $1.39 per share while the expectations were for $1.51. Yet, we believe this result doesn’t change the fact that the economy is expected to start going back to normal, allowing people to go back to Walmart’s physical stores in the near future and that of course is expected to further boost the company’s revenues. Overall, Walmart has got a strong presence in the e-commerce business and its channel there remained strong in all units during the first quarter of 2021. In fact, the e-commerce sales of the company have surged 69% in the US segment.

Walmart is gaining from its constant efforts to expand its diversified portfolio of products as well as e-commerce presence and performance. Moreover, the company has been focused on store remodeling, in an attempt to update them with advanced in-store as well as digital innovations. Actually, the company remodeled 145 of its stores in the fourth quarter alone.

The company has reportedly seen its e-commerce business and omni-channel increasing even more during the pandemic, due to the social distancing and the desire for shopping online among many customers. In order to stay competitive in the future against rivals such as Amazon, Walmart has been improving its e-commerce services, using buyouts, alliances, as well as improved delivery and payments systems.
Walmart’s long-term debt is kept in reasonable levels, meaning that the company’s management is taking wise decisions and not overleveraging itself. Moreover, it has kept on paying dividends and buying back shares in order to return more money to shareholders.

Overall, we believe Walmart’s market positioning is very strong and it is only a matter of time before sales increase again in the near future, driving its share price higher.


Technical analysis

By looking at the share price, we should say WMT stock has been a big winner between March and December 2020. In fact, the stock bounced from the lows at $102 in March to reach the $152 highs on the 2nd of December (49% rise). In the past few months until early March we have seen the price in a corrective mode, sending its shares down to the major support at $126 where lots of buying pressure took place right away and the price failed to break that level to the downside, leading to a massive bullish reaction straight away that has already sent the price towards the current levels at $140. Yet, the technical indicators such as RSI, Stochastics and Bollinger bands have gone to the overbought territory and are giving some indications for a potential correction before another strong bullish reaction takes place. We at Dow Experts always include both fundamental and technical analysis in our approach in order to maximize our followers’ profitability on the different assets we analyze.

Thus, we would like to own the stock but prefer to wait for a short-term profit-taking correction that could send the price down towards the first strong support at $135 before we start buying the stock. In fact, the 50-day moving average stands at $136, matching with the strong support at that level and giving further bullish signals. In case of a further drop in the short-term we would expect to see more bullish interest at around the next key support at $126, which is the level that brought lots of buying pressure in early March, leading to a bullish reversal afterwards. As a matter of fact, the lower Bollinger band matches perfectly with the second strong support at $126 and giving us even more reasons to believe the price would bounce from one of those two major support levels.

Chart: WMT

As you know, we at Dow Experts enjoy analyzing different trading and investment opportunities. In fact, we always include the importance of both fundamental and technical factors that have an impact on the different price movements on a daily basis. Moreover, before we decide to take an action and buy a particular stock we are analyzing, we evaluate the performance of the biggest ETFs out there that invest in the stock and it plays an important role in their portfolios. In other words, we use our cross- sector correlation analysis in order to find out whether there is a similarity between the price-action of the current stock we are analyzing and the certain ETFs that own the stock. Only in case the recent performance of the ETFs confirms our bullish stance on WMT we would then be interested in adding the stock to our portfolio.

The Consumer Staples Select Sector SPDR Fund (XLP) tracks a market-cap-weighted index of consumer non-discretionary (staples) stocks drawn from the S&P 500. The XLP represents the performance of the biggest players within the sector, such as Procter & Gamble, Coca-Cola, PepsiCo, Walmart and others. Moreover, the leading ETF has got $11 billion in assets under management and an average daily trading volume of $856 million, making it a very attractive investment opportunity that gives an exposure to one of the biggest sectors within the US economy that has actually been very attractive for investors and traders over the years. In fact, the reason for the sector being so attractive is because of the essence of the products the companies within that sector offer – non-discretionary. In other words, the sector is concentrated on selling products of utmost necessity and needed for a customer’s daily life. Therefore, those stocks tend to perform well even during bad times on the market, giving investors more security and bringing lower risk on their investments.

Walmart plays an important role within the XLP with its 9% weight within the ETF.


Technical analysis

By looking at the daily chart of the XLP, we could easily see the strong uptrend that the price has been following in the past year, bouncing from the $47 lows in March 2020 to reach the $69 highs in early April this year (47% rise). Yet, currently the price is forming a double top at that strong resistance at $69, while the technical indicators such as RSI and Stochastics have started heading down from the overbought territory, giving further indications for a potential correction in the short-term. We take into account the fact that the earnings season is about to kick off and the future direction of the XLP would be dependent on the quarterly financial results those leading companies within the ETF would report. Yet, before the real earnings season starts on the 15-20th of April we believe the price might make a little profit-taking correction and that would be a great time for investors to start buying at around the first major support at $68-$67.50, followed by the next strong support mark at $66 where more buying pressure is expected and the price is likely to reverse back to the upside from those levels. In fact, the recent price action of the XLP looks very similar to the Walmart stock and further confirms that it would be reasonable to wait for a small correction before buying the stock at a strong support level.


Chart: XLP


In order to further confirm our bullish expectations for Walmart, we have decided to analyze the recent performance of the other leading ETF that owns the stock – the SPY.

The SPDR S&P 500 ETF (SPY) tracks a market-cap-weighted index of US large and mid-cap stocks and is the best recognized and oldest ETF, typically topping rankings for largest assets under management (AUM). Actually, the SPY has got $350 billion in assets under management. The SPY is also the ETF with the greatest average daily trading volume with its $30 billion. Moreover, the SPY is very well diversified thanks to its investments in different sectors on the market. Its current biggest holdings are Microsoft Corp., Apple Inc., Amazon.com, Facebook Inc., Alphabet (Google), Berkshire Hathaway Inc., JPMorgan Chase Inc., & Visa Inc.


Technical analysis

By looking at the daily chart, one could see the massive uptrend that has been going on the leading ETF in the past 12-13 months since the second part of March 2020. In fact, the SPY is up 87% from $218 to the current $408. We have seen lots of buying pressure in the past few weeks, clearly showing traders and investors’ willingness to position themselves ahead of the earnings season starting on the 14th of April. In other words, traders would like to follow the trend and take advantage of the largest US companies announcing their quarterly financial results, which in case better than expected would boost the SPY further in the near future. After a couple of attempts to break the major resistance at $395-$400 in February and then in March, the price has finally managed to break that level to the upside and that is seen as even more bullish especially now ahead of the earnings reports.

The technical indicators are quite overbought but that’s normal considering the fact that when the largest companies in the US announce earnings the leading stocks out there are expected to bring lots of volatility and in case the reports are better than expected, we would expect the SPY to rise further in the short to middle term.

Even if the price drops a bit on a profit-taking correction in the short-term, we would expect to see lots of buying pressure at the first key support (broken resistance) at $395-$400 where more investors would be interested in opening their long positions and potentially pushing the price higher afterwards. In case of a further drop, there is another strong support at the $376 where more buying pressure is likely to take place. So, we doubt the price would go lower than these two levels unless the biggest companies in the US disappoint with their earnings results.


Chart: SPY

Overall, we shall say the recent performance and price-action of the SPY clearly confirms our bullish stance on the Walmart stock and we have decided to add it to our portfolio.


Conclusion

After analyzing the financial performance of Walmart Inc. (WMT), we have got further confirmed the strong presence of the company in the sector it operates and we believe the largest revenue maker in the world is expected to benefit further from its e-commerce sales and of course by the increase of customers’ purchasing activity in their physical stores once the situation with the economy goes back to normal hopefully in the near future. Even during the economic slowdown caused by the coronavirus in the past year, Walmart has managed to deliver some decent results and hasn’t really disappointed its investors, proving that it could remain strong even during such an economic turmoil.

As we mentioned above, we would prefer to wait for a little profit-taking correction that could send the stock towards the first key support at $135 where we would start buying the stock and adding it to our portfolio. In case the price drops further, we would be interested in adding more to our buy positions at the next major support at $126 where more buying pressure is expected. Our initial profit taking target is set at $146-$150, where we would be cashing in half of our profits. Our longer-term take profit would be at $156-$160 where we would be fully cashing in our profits and waiting for another potential correction that would give us a chance to own that great stock again in the future.


Sincerely,

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