Will Recent News Hurt Wal-Mart’s Stock?

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With shares of Wal-Mart (NYSE:WMT) trading around $76, is WMT an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Wal-Mart operates retail stores in various formats around the world. The company aims to price items at the lowest price every day. Wal-Mart operates in three business segments: the Walmart U.S. segment, the Walmart international segment, and the Sam’s Club segment. It manages retail stores, restaurants, discount stores, supermarkets, supercenters, hypermarkets, warehouse clubs, apparel stores, Sam’s Clubs, neighborhood markets, and other small formats, as well as Walmart.com and SamsClub.com. Through its retail channels, Wal-Mart is able to provide a variety of products and services at affordable prices to consumers and companies worldwide.

Former Saturday Night Live star Tracy Morgan has sued Wal-Mart over a highway crash involving one of its drivers that left him seriously injured and a fellow comedian dead. The lawsuit, filed Thursday in U.S. District Court in New Jersey, claims Wal-Mart was negligent when a driver of one of its tractor-trailers rammed into Morgan’s limousine van on June 7. The complaint claims the retail giant should have known that its driver had been awake for more than 24 hours and that his commute of 700 miles from his home in Georgia to work in Delaware was “unreasonable.” It also alleges the driver fell asleep at the wheel. “As a result of Wal-Mart’s gross, reckless, willful, wanton, and intentional conduct, it should be appropriately punished with the imposition of punitive damages,” according to the complaint.

T = Technicals on the Stock Chart Are Mixed

Wal-Mart stock has seen its fair share of volatility over the last couple of years. The stock is currently trading sideways and may need time to consolidate. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Wal-Mart is trading above its rising key averages, which signals neutral to bullish price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Wal-Mart options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Wal-Mart options

15.14%

93%

90%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of Monday, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

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