Why Wal-Mart May Not Be The Bargain You're Looking For

Today, Wal-Mart Stores Inc. (WMT) made headlines when word got out that Black Friday will now be a week-long affair for the blue and yellow big box retailer.

Today’s update from Wal-Mart got me thinking about the stock. After all, Black Friday is fast approaching, and Wal-Mart is a perennial favorite of pre-dawn bargain hunters. The Friday after November marks what should be the happiest time of year for Wall Street—and Main Street—so WMT is sure to get a piece of the action, right?

Well yes, but not enough of the action, in my opinion. For the fourth quarter, Wall Street expects the big box retailer to see sales climb 2.8% and earnings to fall 1.9% compared with Q4 2013. The fact is that the same-store sales growth and customer traffic is stagnating, partly due to changing consumer preferences and a mediocre customer experience at many of its locations. As a result, Wal-Mart plans to open between 60 and 70 supercenters in fiscal 2016, down substantially from the 120 supercenters planned for fiscal 2015.

In the meantime, Wal-Mart reports third-quarter results before market open tomorrow, November 13. And I wouldn’t expect this announcement to turn heads either. The consensus is calling for just 2.3% annual sales growth and a 1.8% year-on-year drop in earnings. This is while the Discount and Variety Stores industry as a whole is expected to see an average 31.5% jump in profits. To add insult to injury, the analyst community has lowered the consensus EPS estimate by $0.04 over the past three months to $1.12. These downward revisions suggest that Wal-Mart will miss analyst earnings estimates when it reports tomorrow.

In fact, I could go on and on about what WMT needs to change before it becomes a buy in my book, but a picture is worth a thousand words, so I’ll let this snapshot from Portfolio Grader speak for itself:

So while some bargain hunters will undoubtedly flock to Wal-Mart during Black Friday "week", WMT shares aren’t a good deal, in my opinion. WMT is a C-rated Hold.

Sincerely,

Louis Navellier

Louis Navellier

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