Walmart Breaks Out to All-Time High

Dow component Walmart Inc. (WMT) broke out to an all-time high this week, clearing 19-month resistance at 152. SPDR S&P Retail ETF (XRT) is struggling near a 52-week low at the same time, highlighting a rotation out of smaller brick and mortar operations into the relative safety of the Arkansas-based megastore. Although questionable, new investors apparently believe that WMT can successfully navigate the gauntlet of soaring inflation and shrinking profit margins.

Soaring Labor Costs and Lower Margins

Costs are rising rapidly, just like its smaller competition, with employee wages surging to new highs. In fact, the company just announced that 12,000 drivers can earn up to $110,000 per year, adding to prior increases across the board. Fortunately, smart investments are bolstering profits at the same time, led by a 77% stake in India’s Flipkart, with valuation ahead of a 2023 initial public offering now standing in the lofty $60 to $70 billion range.

Walmart is increasing expenses by expanding into Atlanta and Toronto hubs, adding to labor costs with the hiring of 50,000 floor workers and 5,000 technology workers. These new hires come on top of 100,000 employees that were added to the global workforce in the prior fiscal year. The rapid expansion, at the same time that employee wages are skyrocketing, will require the company to rapidly translate expenses into profits to avoid disappointing market watchers.

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating based upon 21 ‘Buy’, 7’ Overweight’, and 9 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $136 to a Street-high $190 while the stock is set to open Friday’s session about $9 below the median $165 target. This modest placement bodes well for continued upside into the mid-range number.

Walmart broke out in April 2020, carving a series of new highs into the September peak at 151.33. Three breakout attempts into November 2021 failed, carving a sideways pattern that crisscrossed the 200-day moving average multiple times. Aggressive buyers emerged after February 2022’s 11-month low, yielding a vertical impulse that surged above resistance this week. However, the rapid ascent has set off a major bearish divergence because accumulation has barely budged during the rally, predicting severe testing at new support.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.