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Walmart stock nears a potential tipping point

Brian Sozzi
·Executive Editor
·2-min read

After an earnings day drubbing on Thursday, Walmart's stock (WMT) could be about to go on sale like an out of season winter jacket.

Shares of the world's largest retailer plunged 6.48% on Thursday, causing the stock to fall below both its 50-day and 100-day moving averages. The stock is now dangerously close to testing its 200-day moving average (dark red line below). If it falls below that mark, most technical analysis pros would say there is a clear shot for shares to quickly test the late August 2020 levels of about $130.

Factoring in Thursday's sharp drop, Walmart stock is still up 25% over the past year compared to a 7% gain for the Dow Jones Industrial Average.

Walmart shares approach a key technical level after an earnings day rout.
Walmart shares approach a key technical level after an earnings day rout. (Yahoo Finance Premium)

To be sure, further downside pressure on Walmart stock is more than likely in light of what the retailer had to say on its earnings day.

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While Walmart saw impressive 8.6% same-store sales growth at its namesake U.S. stores and a 10.8% pop at Sam's Club, the company's operating profits were under pressure amid COVID-19 related costs. Walmart's fourth quarter operating profit growth at its U.S. stores and Sam's Club lagged sales growth (not a good sign for fundamental analysts). Meanwhile, operating profits at its international division fell 18.3% on a 5.5% sales increase.

The profit pressure in the fourth quarter — and a stepped up pace of capital expenditure this year and new wage hikes for employees — took their collective toll on Walmart's outlook. Walmart said it sees adjusted earnings per share unchanged to up slightly in 2021 compared to 2020.

Wall Street analysts are likely to lower their profit estimates (and maybe ratings) on Walmart for the year as a result, raising the risk of added pressure on the stock.

Following the results and the company's investor day, CFRA analyst Garrett Nelson cut his rating on Walmart to Hold from Strong Buy in part because of cost pressures.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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