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Consumer ETFs in Focus on Wal-Mart Earnings Beat

Sweta Killa
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Wal-Mart WMT once again bucked weak trends in the retail sector, topping our earnings and revenue estimates when it reported second-quarter fiscal 2018 results. However, it guided lower for the ongoing fiscal quarter and fiscal year.
    
Q2 Results in Focus

Earnings per share came in at $1.08, beating both the Zacks Consensus Estimate and improving from the year-ago earnings by a penny. Revenues inched up 2.1% year over year to $123.4 billion and were ahead of our estimate of $122.7 billion.

E-commerce surge and strong grocery sales drove revenues in the quarter. Notably, e-commerce sales jumped 60% year over year. U.S. same store sales grew for the twelfth consecutive quarter, climbing 1.8% year over year with a 1.3% increase in traffic sales (read: Retail Sales Off to a Great Start to Q3: ETFs to Buy).

Wal-Mart continued to expand its business in the digital world. The mega retailer expects earnings per share in the range of 90-98 cents for the ongoing quarter. The midpoint of the guidance is much below the Zacks Consensus Estimate of 98 cents. U.S. same-store sales are expected to grow 1.5-2%.    

Additionally, the company raised the lower end of its fiscal 2018 earnings per share guidance to $4.30-$4.40 from $4.20-$4.40. The midpoint of the guidance is much below the Zacks Consensus Estimate of $4.37.

Market Impact

Amid disappointing guidance, the stock fell 1.6% on the day following the results. Meanwhile, the stock crushed the volume figure as nearly 17.3 million shares exchanged hands compared with more than 9 million on average (read: 5 ETFs & Stocks on Sale).

Currently, Wal-Mart has a Zacks Rank #2 (Buy) with a VGM Style Score of A and boasts a solid Zacks Industry Rank in the top 20%, indicating room for upside in the near term. As a result, the current beaten down price could be a good entry point. As such, we highlight four consumer ETFs having the largest allocation to this retail giant that are likely to be in focus in the days ahead. Investors should closely monitor the movement in these funds and grab the opportunity when it arises:

First Trust Nasdaq Retail ETF FTXD

The fund follows the Nasdaq US Smart Retail Index and holds 50 stocks in its basket. WMT occupies the top position in the basket with 8.5% of assets. While broadline retailers and specialty retailers make up for a bigger chunk at 24.9% and 22.1%, respectively, food retailers & wholesalers, specialized consumer service, and home improvement retailers round off the next three spots. FTXD has accumulated $1.9 million since its debut last September and trades in nearly 1,000 shares a day on average. Expense ratio comes in at 0.60%.

iShares Edge MSCI Multifactor Consumer Staples ETF CNSF

This ETF debuted in the space a year ago and has attracted $2.6 million in its asset base. It trades in a meager volume of about 200 shares. The fund targets companies that have the potential to outperform the broad U.S. consumer staples sector and tracks the MSCI USA Consumer Staples Diversified Multiple-Factor Capped Index. Holding 29 stocks in its basket, Wal-Mart takes the second spot, accounting for 8.4% of the portfolio. In terms of industrial exposure, more than half of the portfolio is dominated by food beverage tobacco while food & staples retailing, and household and personal product take the remainder with a double-digit exposure each. CNSF charges 35 bps in fees per year (read: Will Tobacco Troubles Really Char Staples ETFs' Safety?).

Consumer Staples Select Sector SPDR Fund XLP

This is the most popular consumer staples ETF that follows the Consumer Staples Select Sector Index and has about $8.5 billion in its asset base. The fund charges 14 bps in fees per year from investors and trades in heavy volume of nearly 9.8 million shares a day. In total, the fund holds about 37 securities in its basket with Wal-Mart taking the fourth spot at 6.5%. From a sector look, food and staples retailing takes the largest share at 22.5% while beverages, household products, food products and tobacco account for a double-digit allocation each. XLP has a Zacks ETF Rank of 3 with a Medium risk outlook.

Fidelity MSCI Consumer Staples Index ETF FSTA

This fund tracks the MSCI USA IMI Consumer Staples Index, holding 100 stocks in its basket. Out of these, WMT takes the sixth spot with 6.2% share. The ETF is widely diversified across beverages, food and staples retailing, household products, food products, and tobacco. It has amassed $309 million in its asset base, while trades in a moderate volume of around 67,000 shares a day on average. It charges 8 bps in annual fees from investors. The fund has a Zacks ETF Rank of 3 with a Medium risk outlook (see: all Consumer Staples ETFs here).

John Hancock Multifactor Consumer Staples ETF JHMS

This product also targets the consumer staples sector emphasizing factors (smaller cap, lower relative price, and higher profitability) that academic research has linked to higher expected returns by tracking the John Hancock Dimensional Consumer Staples Index. Holding 58 stocks in its basket, WMT takes the fourth spot at 5.2% share. Food products takes the largest share in terms of industrial exposure with 25.6% while food and staples retailing, beverages and household products round off the next three spots. The fund has accumulated $17.1 million in AUM and trades in a paltry volume of under 1000 shares. It has a Zacks ETF Rank of 3.

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