Should I sell Walmart shares after Q1 results?

By:
on May 17, 2022
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  • Walmart missed estimates with Q1 EPS
  • Bank of America has a buy rating on Walmart
  • The position of Walmart remains strong

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Walmart Inc (NYSE: WMT) shares have weakened more than 15% after the company reported worse than expected first-quarter results.

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Walmart missed estimates with Q1 EPS and also gave a cautious forecast for the full year and reported it now sees EPS down about 1%.

Bank of America has a positive view of Walmart

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Walmart reported worse than expected first-quarter results this Tuesday; total revenue has increased by 2.4% Y/Y to $141.6 billion, while the non- GAAP earnings per share were $1.30 (missed by $0.18).

Operating income fell to $4.5 billion from $5.5 billion for Walmart U.S., while operating income for Walmart International dropped to $0.8 billion from $1.2 billion. Walmart also gave a cautious forecast for the full year and reported it now sees EPS down about 1%.

The company’s management said that it is not happy with the profit performance for the quarter and it will take action, especially in the part of the cost negotiations, staffing levels, and pricing. Doug McMillon, CEO of Walmart, said:

The bottom line results were unexpected and reflected the unusual environment. U.S. inflation levels, particularly in food and fuel, created more pressure on margin mix and operating costs than expected. We’re adjusting and will balance the needs of our customers for value with the need to deliver profit growth for our future.

During the quarter, Walmart experienced high levels of inflation, while international pressure points related to the COVID lockdowns in China also created operational and financial pressure.

Brett Biggs, CFO of Walmart, said that the first quarter was one of the most challenging periods in the last several years and warned that the costs related to inventory and fuel prices in the U.S. would also impact the second fiscal quarter.

Brett Biggs also said that position of Walmart remains strong, and its business model was built to weather times like this when customers are making more real-time choices.

The company’s management will continue to manage pricing to preserve competitive price gaps and continue to make progress in executing a long-term strategy.

According to Bank of America, Walmart can mitigate cost pressure vs. smaller peers, and because of this, Bank of America has a buy rating on Walmart.

Bank of America has a price objective of $190 on Walmart shares and expects improving results in the upcoming quarters.

Technical analysis

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Walmart’s stock price has fallen more than 15% after the company reported first-quarter results this Tuesday.

Data source: tradingview.com

The strong support level stands at $120, and if the price falls below it, the next target could be $100. On the other side, if the price jumps above $150 resistance, it would signal trading shares, and the next target could be at $160 or even above.

Summary

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Walmart shares have weakened more than 15% after the company reported first-quarter results and gave a cautious forecast for the full year. Bank of America has a buy rating on Walmart shares and a price objective of $190 per share despite the fact that Q1 EPS missed the estimate.

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