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MARKETS LIVE BLOG:

STOCKS SLIDE AFTER META'S REALITY CHECK, DOWNBEAT GDP

Caterpillar sinks 7% after earnings, management sees weakness in Europe, Asia-Pacific

Is Wal-Mart's Upbeat Q4 a Godsend for Consumer ETFs?

Sanghamitra Saha
Updated

The world's largest retailer Wal-Mart’s WMT fourth-quarter fiscal 2017 results cheered investors, wherein it beat the Zacks Consensus Estimate on both the fronts.

Also, the retail giant announced a 2% hike in its annual cash dividend to $2.04 per share. The annualized forward dividend results into a dividend yield of 3.5%, based on Wal-Mart’s closing price of $71.45 as of February 21, 2017. This represents the 44th successive year of a dividend hike.

Earnings in Details

Adjusted earnings per share came in at $1.30, beating the Zacks Consensus Estimate by a penny but deteriorating from the year-ago earnings of $1.49. Revenues grew 1% year over year to $130.9 billion, ahead of the Zacks Consensus Estimate of $130.6 billion. Currency hurt sales by approximately $2.65 billion. Higher comparable store sales (comps) primarily drove the year-over-year upside.

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Wal-Mart expects U.S. comp sales growth in the range of 1−1.5% for the 13-week period ending April 28. The company expects earnings in the range of 90 cents to $1.00 per share for the first quarter of fiscal 2018. For fiscal 2018, adjusted earnings are estimated in the range of $4.20−$4.40 per share.

Market Impact

Following the square beat, shares of Wal-Mart rose about 3.4% over the last two trading sessions (as of February 22, 2017) post the earnings release, on almost two times elevated volumes than on a normal day. The stock is still scaling higher, having gained about 0.3% during after-hour trading on February 22.  This uptrend might continue at least in the near term.

With that being said, we would like to note that the stock has a Zacks Rank #4 (Sell) but a Value score of A. The Industry rank is in the bottom 7% as the brick-and-mortar retailer lags the online retailing space. So now it is to be seen that if this value stock can pull up the entire retail sector (read: Will Trump's New Policies Hurt These Sector ETFs & Stocks? (updated)).

As of now, investors who are not confident about the prospects of this Sell-rated company but intend to cash in on the uptrend can play the stock through a basket form. For such investors, we have highlighted three consumer ETFs with this retail giant holding a major share:

VanEck Vectors Retail ETF RTH

This 26-stock fund has amassed about $96.5 million. The expense ratio is 0.35%. In terms of holdings, Wal-Mart is the third firm making up 6.2% of assets while the specialty consumer discretionary sector takes the largest share with 58% of assets. The fund gained about 0.7% following Wal-Mart’s earnings release and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook (read: Retail Sales Rebound in January: ETF & Stock Picks).

Consumer Staples Select Sector SPDR Fund XLP

This is the most popular consumer staples ETF that follows the Consumer Staples Select Sector Index and has amassed about $8.3 billion in its asset base. The fund charges 14 bps in fees per year from investors. In total, the fund holds about 39 securities in its basket with Wal-Mart taking the sixth spot at 5.58%. Sector-wise, food and staples retailing takes the top spot at 23%. XLP has advanced 0.9% in the last two trading sessions (as of February 21, 2017) and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.

Fidelity MSCI Consumer Staples Index ETF FSTA

Wal-Mart takes the sixth spot with 5.3% share. In terms of industrial exposure, about one-fourth of the portfolio is allotted to food and staples retailing. The product has amassed $232.5 million in its asset base. It is one of the low-cost choices in the space, charging 8 bps in annual fees. The fund was up 0.9% and has a Zacks ETF Rank of 3 with a Medium risk outlook (see: all Consumer Staples ETFs here).

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VANECK-RETAIL (RTH): ETF Research Reports
 
Wal-Mart Stores, Inc. (WMT): Free Stock Analysis Report
 
SPDR-CONS STPL (XLP): ETF Research Reports
 
FID-STAPLES (FSTA): ETF Research Reports
 
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Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report