The holiday season is when the retailing sector is put under a microscope and analysts of all shapes and sizes try to discern strategic trends from a few weeks of frenetic activity. Since consumer spending accounts for such a large portion of U.S. economic activity, this makes sense; as goes the consumer, so goes the economy. And few companies symbolize retailing better than Wal-Mart Stores ($WMT).
The good news for Wal-Mart is that a variety of macro elements have aligned to create one of the best foundations for retailers in several years. U.S. economic growth finally edged out of its moribund post-crisis funk, payroll gains have been solid, and few sectors are more leveraged to falling oil prices than discount retailing.
For a company like Wal-Mart, which sells everything and is everywhere, the operating environment heading into 2015 is one of the best in years. Unsurprisingly, the stock has performed well since the break in oil prices, rising just under 11% year-to-date, but a whopping 17% since October 16th. It displayed significant relative strength during both the hiccup in early October and the correction in December, and made a technical breakout from a two-year price channel in the process. Due to its massive size and membership in many popular market indices,$WMT has both an effect on, and is a participant in, broader market trends, meaning the stock’s strength this quarter has been a major factor in pushing the market to record levels.
As with any stock, however, the question is whether the current valuation already reflects these things. Recent hikes in the minimum wage will affect about 30% of $WMT’s U.S. stores, and while the drop in gas prices is essentially turbocharging the company’s results now, there is some question whether this effect will still be seen in six months. With a forward P/E of 16, EPS growth of 5-6% per year, a PEG ratio over 3 and a 2.5% yield,$WMT may be a defensive blue-chip stock, but it is certainly not a cheap one.
Wall Street’s opinion of Wal-Mart is typical of a well-performing mega-cap. Of 31 active analysts, 11 rate the stock a buy, 16 have holds, and four rate the stock a sell. Meanwhile, although $WMT is one of the most actively-watched stocks on Vetr.com, our users almost unanimously rate the stock a sell – only one rating out of ten is a buy. Indeed, the average 6-month target among Vetr.com users is only $79, more than 8% lower than the current quote.
What do you think the future holds for Wal-Mart? Can the stock continue to push higher, or has it already priced the good news? Make a rating!