Wal-Mart Slips Despite Strong 1Q

The market is always looking ahead. Even after a solid 1Q on higher sales and profits, Wal-Mart Stores (WMT, $56.65, down $1.37) spooked Wall Street after giving cautious 2Q guidance. The company reported income of $3.02 billion for the quarter, up nearly 7% from $2.82 billion, versus the same period last year. Revenue increased 10%, to $94.12 billion from $85.39 billion. Wal-Mart beat by a penny with earnings of $0.76 while analysts’ pegged estimates at $0.75 a share.

That was the good news. What Wall Street didn’t like was the company’s 2Q guidance in earnings of $0.78- $0.81 a share which was below earnings of $0.81 a share analysts had forecast. Wal-Mart said it was “unable to predict how the U.S. government stimulus checks will impact the marketplace.”

While this is true, Wal-Mart basically gave conservative guidance to cover itself in case consumer spending dips. If that were to happen, then Wal-Mart could miss next quarter’s numbers. Perhaps this was the thinking today as investors sold-off the stock. However, I believe the sell-off wasn’t warranted especially for a company that reported a quarter this good.

I had mentioned a week or so ago that Wal-Mart was trying to push through some key resistance levels at $60 but has failed each time it has gotten near this level. Today was no different although it should have been.

Rick Rouse
Rick@OptionsMentoring.com

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