Will Q1 Earnings Bring More Pain For Wal-Mart ETFs?

Mega retailer Wal-Mart (WMT – Free Report) is set to release first-quarter fiscal 2019 results on May 17, before the market opens. After posting sluggish results for fourth-quarter fiscal 2018 results due to the slowdown in e-commerce sales, it is worth taking a look at its fundamentals ahead of its latest results.

The stock has been beaten down following its fourth-quarter fiscal 2018 results, losing 19.5% in the past three months. This is wider than the industry's loss of 18.2%. The underperformance is expected to continue given that Wal-Mart has an unfavorable Zacks Rank and earnings estimate revision trend ahead of its Q1 report.

Inside Our Methodology

Wal-Mart has a Zacks Rank #4 (Sell) and an Earnings ESP of +0.60%. According to our surprise prediction methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP raises the possibility of a beat. A Zacks Rank #4 or 5 (Strong Sell) stock is best avoided going into the earnings announcement, especially when the company is seeing negative estimate revisions. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

This is what we have seen for Wal-Mart. The company saw its earnings estimates go down by a penny to $1.12 for the fiscal first quarter over the past seven days. Analysts' decreasing estimates right before earnings — with the most up-to-date information possible — do not bode well for the stock.

However, the Zacks Consensus Estimate represents substantial year-over-year growth of 12%. Additionally, the earnings track record is respectable, with an average positive surprise of 1.50% for the last four quarters. WMT boasts a solid Value and Growth Score of A each and belongs to the top-ranked Zacks Industry (top 41%).

According to the analysts polled by Zacks, Wal-Mart has an average target price of $101.48 with less than half of the analysts having a Strong Buy or a Buy rating ahead of its earnings. This indicates about 20% upside to the current price of WMT.

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