Here’s What the WMT Stock Skeptics are Missing
Wednesday morning, investors witnessed the biggest erosion of shareholder value when more than $20.0 billion was removed from the market within a matter of minutes. The world’s largest retailer and one of the largest stocks on the NYSE, Wal-Mart Stores, Inc. (NYSE:WMT) took a nosedive following a financial forecast release from the company executives where they revised down the forecasted figures for the next year. The stock plunged close to 10%, the worst of its falls in 17 years.
The company cited technological investments, unfavorable foreign exchange translations, and employee wages causing a downward pressure on earnings. Wal-Mart Chief Financial Officer Charles Holley forewarned that the next two years will be tough, predicting 2017 to be the “heaviest investment period” going forward. The retailer cites wage hikes to bear their maximum effects during 2017, when the company expects its earnings per share (EPS) to decline between six percent and 12%, which is expected to later improve by 2019.
Wal-Mart Stockholders Shouldn’t Overlook These Signs
Wal-Mart’s CEO announced a minimum wage rate of $10.00 per hour earlier this year, but it appears this is going to have to go up against the company’s (and now investors’) wishes. An important takeaway from the news release is the company’s decision to pull down more than a billion dollars in capital investments and use that money to boost investments in e-commerce and digital initiatives. Two things are for certain:
1) The company is now positioning itself to take on e-retailers
2) Layoffs are on the way
A day before this market mayhem, the activist organization “Making Change at Walmart” used Tuesday night’s Democratic presidential debate on CNN as the launch for its anti-Wal-Mart videos, demanding a wage hike for workers. It is evident that Wal-Mart disclosed the news Wednesday morning to neutralize the negative publicity, which actually backfired and ended up costing its investors. The company also resorted to the tested market technique of buybacks to give a boost to its share price, but the negativity has clearly outweighed it.
The activist organization “Making Change at Walmart” has been protesting for a minimum wage of $15.00 per hour for workers. Now, the two liberal frontrunners, Bernie Sanders and Hillary Clinton, have both taken up the minimum wage–hike agenda. Sanders is going for $15.00 per hour, while Clinton is aiming for $12.00 per hour. Either way, Wal-Mart has pre-empted the future. Consequently, the increasing digital investments and the looming wage hike threat point to inevitable future layoffs at the company.
It makes us question the brick-and-mortar model of the company that competes with online retailers like Amazon.com, Inc. (NASDAQ:AMZN). Investors are skeptical as to whether Wal-Mart can hold up its positive earnings while competing with a giant like Amazon.com, which thrives on a negative earnings model but still trades eight times higher on the market than Wal-Mart Stores, Inc.
Here’s the Bottom Line on Wal-Mart Stock
When the going gets tough, the tough get going. The company has a longstanding history of great performance in the retail sector. There are always challenges for being the biggest in anything, but Wal-Mart has built its way up there over more than half a century. It’s unfair to completely ignore its strong footing both locally and internationally.
Despite tough competition from retailers like Target Corporation (NYSE:TGT), Whole Foods Market, Inc. (NASDAQ:WFM) and Costco Wholesale Corporation (NASDAQ:COST), the company withstood challenges and consistently generated positive revenues and earnings, which have grown over the years. Legendary investors like Warren Buffett and George Soros have held onto the stock for its great dividend payouts that have consistently increased over the years.
I find yesterday’s dip to be a great opportunity to pick up the stock on the cheap. Wal-Mart is here to stay!