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Rating upgrade turns Wal-Mart bullish

The stock of the world’s largest retailer Wal-Mart Stores (NYSE: WMT) has hardly moved in the past two months.

While the financial markets across the world touched new heights, the stock remained range bound between $68 and $71. The fiscal 2017 third-quarter earnings of $3.034 billion or $0.98 per share exceeded analysts’ estimates of $0.96 per share. Furthermore, Wal-Mart raised the lower end of its fiscal 2017 earnings outlook to a range of $4.20 to $4.35 per share, from $4.15 to $4.35 per share issued earlier. In spite of these positive developments, the stock has not appreciated so far.

One of the main reasons for the range bound movement is the unimpressive Q3 revenue of $118.179 billion that was slightly below the Thomson Reuters estimates of $118.70 billion. However, we anticipate the stock to turn bullish in the days ahead due to the reasons given below.

Walmart

The Arkansas-based company is perceived as an old-fashioned retailer. Thus, investors raised eyebrows earlier this year when the company took over online shopping portal Jet.com. However, very few people are aware of the fact that Wal-Mart has been the no.2 online retailer in the US, much before acquiring Jet.com. During the recent holiday season the online portal made a mark for itself.

While Amazon faced some shipping issues, Jet.com did not. What made the difference was the use of unparalleled logistics network of Wal-Mart. The acquisition is turning out as a force to be reckoned with. The company pays a dividend of 2.9% and continues to repurchase shares from the secondary market. The incredibly large free cash flow of $12.185 billion (as of third-quarter) enabled the company to repurchase shares without any issues. In its international business, 10 out of the 11 markets reported positive same store sales growth in the third-quarter. The PE ratio of 15.28 makes it one of the cheapest large cap stocks currently available in the US market.

Considering the growth prospects, analysts at Jefferies Group have given a ‘buy’ rating to the stock of Wal-Mart, with a target price of $86. Likewise, analysts at Vetr investment research firm has upgraded the stock’s ‘hold’ rating to a ‘buy’ rating, with a target price of $73.85. Thus, fundamentally, the underlying trend remains bullish.

The price chart indicates support for the stock at 68.10. The stochastic oscillator is flattening out in the oversold region. This indicates the possibility of a short-term rally in the stock.

Walmart Stock Price: January 9th 2017

Walmart Stock Price: January 9th 2017

So, a high or above contract can be traded to gain from the probable uptrend of the stock of Wal-Mart. Care should be taken to invest in the contract when the underlying equity trades below $68.50 (quotes provided by the binary broker) in the cash market. Ideally, the contract expiry date should fall on or around the 16th of January.


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