This week, several big box retailers reported earnings: Home Depot Inc. (HD), Lowe’s Companies (LOW) and Target Corp. (TGT). But today, Wal-Mart (WMT) captured Wall Street’s attention with its Q1 report. So the question I’m sure you’re wondering right now is: With WMT shares rising an impressive 8% on the news, is it finally time to load up?
Well, let’s take a closer look.
For starters, WMT’s revenue climbed just 0.9% year-on-year to $115.9 billion. Now, even though this might have beaten the $113.2 billion consensus estimate by 2.4%, sales at stores open at least a year still managed to fall. That’s not good long-term news for the company.
On the same note, net income fell from $3.34 billion a year ago to $3.08 billion now.
However, to keep us guessing about this stock’s current viability, we ought to take a look at WMT’s earnings per share. In fact, EPS was $0.98, which beat the $0.88 consensus estimate by 11.4%. So at a quick glance, the facts in this matter appear confusing as they weigh back and forth.
Here’s where we can get some clear guidance, though. Looking ahead to the second quarter, Wal-Mart is targeting EPS between $0.95 and $1.08. This is in line with the Street’s view of $0.98 EPS, but considering that Wal-Mart earned $1.08 per share in Q2 2015, this represents at best flat earnings growth. At worst, it means a 12% drop in earnings.
So what’s the bottom line?
Well, while Wal-Mart did better than expected last quarter, it still doesn’t change the simple fact that Wal-Mart’s earnings are shrinking. Not to mention, its sales aren’t growing fast enough. And neither of these facts is good news for this big box retail giant in the long run.
Moreover, WMT earns a D-rating in my Portfolio Grader tool. And while the stock has a 3.1% annual dividend yield, it isn’t doing well on dividend reliability or dividend growth either. In fact, WMT earns a C-rating in Dividend Grader as well.
Keeping all this in mind, I wouldn’t add more WMT shares at this time. Instead, if you’re a current shareholder, I’d sell the stock into strength.