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Wal-Mart (WMT) Recalls Frozen Pizzas on Contamination Risk

Zacks Equity Research

Retail giant Wal-Mart Stores Inc. WMT announced that it is recalling its most popular frozen pizzas on the grounds of contamination risk with listeria, per Reuters.

The issue was discovered during a sample test conducted by the manufacturer RBR Meat Company, which makes these Marketside Extra Large Supreme 16-inch pizzas and sells exclusively to Wal-Mart.

As per media reports, The U.S. Department of Agriculture’s Food Safety and Inspection Service (FSIS) has found that about 21,000 pounds of the frozen pizza products might be contaminated with L. monocytogenes bacteria. These bacteria can cause infection that can be fatal for senior citizens, pregnant women, and people with weaker immune systems. High fever, stiffness, and nausea are some of the common symptoms of the contamination.

The FSIS has warned customers against the purchase of frozen pizzas, although no cases of indisposition have been reported yet.

Wal-Mart has always remained under media’s scrutiny due to the size and scale of operations. In the past, it had to face criticism for issues such as labor disputes and breach of food safety measures in China. Wal-Mart is also facing bribery allegations and lobbying charges in China, India and Brazil. All these issues not only raises expense burden, but also adversely impacts the company’s business practices.

Despite a number of potential headwinds, share price of Wal-Mart has been rising as the company remains focused on building its e-commerce capabilities, foraying into new markets, expanding product assortments and implementing innovative ways to drive traffic.

Wal-Mart Stores has increased in comparison to the index since the past one year. We note that in the said period, the stock gained 4.4%, in comparison to the Zacks categorized Retail-Supermarkets industry’s growth of just 0.2%. Further, the company delivered positive earnings surprises in the past six consecutive quarters.

In fact, recently, analysts of Bank of America and Merrill Lynch have shown optimism in Wal-Mart’s valuation. The analysts foresee much potential in the stock owing to the recently reported robust fourth-quarter fiscal 2017 results. This can be attributed to the company’s strong same-store sales and growing e-commerce business.

Despite having a Zacks Rank #4 (Sell), Wal-Mart carries a VGM score of ‘A’, and a Value and Growth score of ‘A.’ This indicates that there is substantial potential in the stock.

Higher Comps

Wal-Mart reported higher comparable store sales (comps) in fourth-quarter fiscal 2017, wherein earnings and revenues exceeded the Zacks Consensus Estimate. The company’s Wal-Mart U.S. same-store sales beat estimates by 1.8% amid a challenging environment that saw many retailers report negative same-store sales.

Investments in e-commerce Business

Wal-Mart is making huge investments in e-commerce to compete better with brick-and-mortar rivals as well as Amazon.com Inc. AMZN. These efforts are also aimed at growing the company’s hold in the online business.

In this regard, Wal-Mart is executing acquisitions that provide access to more upscale customers and new technologies. Further, the company continued to forge ahead with its Walmart.com initiatives, with offers like free two-day shipping on purchases of $35 or more for over 2 million items, which could earlier be availed for a membership fee of $50. Wal-Mart also expects to expand its online grocery pickup – Walmart Grocery – from the current 600 to roughly 1,200 stores in fiscal 2018.

Wal-Mart Stores, Inc. Price, Consensus and EPS Surprise


Wal-Mart Stores, Inc. Price, Consensus and EPS Surprise | Wal-Mart Stores, Inc. Quote

Key Picks

Better-ranked stocks in the retail sector are The Children's Place, Inc. PLCE and Kate Spade & Company KATE.

While Children’s Place sports a Zacks Rank #1 (Strong Buy), Kate Spade carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

While Children’s Place has an expected long-term earnings growth of 10.3%, Kate Spade has an expected earnings growth of 28.3% for the next three to five years.

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