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

Sweta Killa
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Mega retailer Wal-Mart WMT 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 (read: Wal-Mart's Dismal Q4 Results Drag Consumer Staples ETFs Down).

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 (read: Walmart Acquires 77% in Flipkart: ETFs in Focus).

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.

ETFs in Focus

Given this, ETFs having the highest allocation to the world's largest brick and mortar retailer will be in focus going into its earnings announcement.

iShares Edge MSCI Multifactor Consumer Staples ETF CNSF – The fund has declined 6.8% in the past three months and has a Zacks ETF Rank #4 (Sell). Wal-Mart takes the second spot in the basket with 9.7% of the assets (see: all Consumer Staples ETFs here).

VanEck Vectors Retail ETF RTH – The fund has added 2.6% in the same time frame and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. Wal-Mart occupies the third position and accounts for 9.04% share.

Consumer Staples Select Sector SPDR Fund XLP – It has lost about 8.2% and has a Zacks ETF Rank #3 with a Medium risk outlook. Here, WMT takes the fifth spot with 7.9% share (read: Don't Sell in May and Go Away: Follow These ETF Strategies).

Fidelity MSCI Consumer Staples Index ETF FSTA – This fund has a Zacks ETF Rank #4 with a Medium risk outlook and has shed 7.6% over the past three months. Wal-Mart takes the fourth spot with 7.4% allocation.

Vanguard Consumer Staples ETF VDC – The product is down 7.3% in the last three months and has a Zacks ETF Rank #3 with a Medium risk outlook. WMT occupies the fourth position and accounts for 7.2% of assets.

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