Walmart Set to Test 2020’s All-Time High

Dow component Walmart Inc. (WMT) reports Q2 2021 earnings next week, with analysts expecting a profit of $1.56 per-share on a staggering $135.7 billion in revenue. If met, earnings-per-share (EPS) will match results in the same quarter last year, when the retail behemoth benefited from pandemic shutdowns. The stock rose 2.2% in May after beating Q1 top and bottom line estimates and is now testing December’s all-time high in the low 150s.

Strong August Recovery

The company has shaken off mediocre first half performance in recent weeks and is now posting a positive 4% return for the year. Big upside last year generated extremely overbought technical readings that have worked out of the system through time rather than price, raising odds for continuation of the strong uptrend. Even so, accumulation is lagging price action by a country mile, with volume indicators situated well below 2019 and 2020 peaks.

Wells Fargo analyst Edward Kelly upgraded Walmart to ‘Overweight’ last week, noting, “Our positive view is based on: 1) Normalizing consumer behavior should allow WMT to recapture share lost to conventional grocers during the pandemic. 2) We remain positive on the lower-end consumer despite numerous cross currents. 3) We see more earnings certainty in 2022 than at other retail peers. 4) The services narrative is likely to continue to improve. 5) Valuation looks attractive given significant underperformance to peers, especially when pulling out Flipkart.”

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating based upon 21 ‘Buy’, 5 ‘Overweight’, 7 ‘Hold’, and 1 ‘Underweight’ recommendation. In addition, two analysts recommend that shareholders close positions. Price targets currently range from a low of $127 to a Street-high $185 while the stock is set to open Thursday’s session about $15 below the median $165 target. A rapid ascent through the 150s is possible if Q2 earnings beat consensus by a wide margin.

Walmart cleared 2018 resistance in June 2019 and carved an uptrend that gathered strength after March 2020’s pandemic decline. The rally stalled just above 150 in September while a November breakout failed after posting an all-time high at 153.66. The stock fell more than 25 points into March and turned higher, carving a two-legged recovery that’s now stretched within four points of the prior peak. Even so, a sustained rally to new highs could take time to evolve, with deficient accumulation readings raising odds for whipsaws.

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