Wal-Mart Sentiment Soft Ahead of 4Q Earnings

RavenPack | February 17, 2015

Sentiment toward Wal-Mart, which reports its Q4 earnings before the bell Thursday, has declined over the quarter, while its share price has seen a $10 move higher.

That does not mean a negative earnings surprise, but given consensus is for Q4 EPS near the top-end of the company's $1.46-$1.56 guidance range, caution may be appropriate.

Wal-Mart Sentiment Soft Ahead of 4Q Earnings

Figure 1 shows the relative strength of sentiment for Wal-Mart against price for the last year. The black line is the 14-day RSI of sentiment and red line is the 90-day sentiment RSI. The blue line is the WMT daily adjusted close price.

The 90-day sentiment RSI has been below neutral (50) since mid-September 2014 and the situation could have been even worse were it not for an improvement in short-term sentiment shortly after the holiday sales season. Around that time there was some general retail sector optimism related to lower oil prices. There was also a fair amount of positive media attention on a settled lawsuit and the announcement of an option to pick up tax refunds in cash. Neither likely to support sentiment for long.

From figure 1 it looks like WMT’s recent price performance has not reflected a deterioration in longer-term sentiment. To be fair, however, we are comparing apples to oranges - a price versus an RSI. So, in figure 2 we see the relative strength of price against the relative strength of sentiment.

Wal-Mart Sentiment Soft Ahead of 4Q Earnings

Again, longer-term sentiment appears weaker than price but this chart also shows that Wal-Mart has had neither positive price nor sentiment momentum over the last quarter.

Hence, downgrades to ‘neutral’ ratings from Morgan Stanley and HSBC in the last month are not really surprising. And perhaps don’t expect WMT to knock the ball out the park come Thursday.

The sentiment Relative Strength Indicators are produced by finding the novelty-weighted sum of all event sentiment concerning the company each day and then calculating traditional 14-day and 90-day RSIs of this sum.

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