Why Wal-Mart Stock Got Slapped Around Thursday

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At an investor day presentation Thursday, Wal-Mart Stores Inc. (NYSE: WMT) said it continues to expect adjusted earnings per share (EPS) of $4.15 to $4.35 for its 2017 fiscal year ending in January. That’s below fiscal year 2016 adjusted EPS of $4.59, but higher than the company first estimated back in February.

Net sales are forecast to rise about 3% on a constant currency basis and the company expects capital spending of $11 billion in fiscal 2017, and a compound annual growth rate of 3% to 4% for the three years 2017, 2018 and 2019. Operating cash flow is projected at $80 billion over the three-year period.

Based on the current fiscal year’s EPS estimate (which excludes a $0.14 per share gain related to the Yihaodian sale), Wal-Mart expects fiscal 2018 EPS to be flat and 2019 EPS to fall at the low end of a previously forecast increase of 5% to 10%, primarily as a result of the company’s recent $3.3 billion acquisition of Jet.com.

Capital spending on new Wal-Mart supercenters and Sam’s Club stores has been declining and will decline further in fiscal 2018. Remodeling and more investment in logistics and, especially, e-commerce are intended to shift the revenue stream from new brick-and-mortar stores to the company’s new e-commerce offerings.

That shift won’t be easy, but the target is not too far to reach. Wal-Mart’s e-commerce revenues last year totaled about $14 billion of total revenues around $480 billion. If the company can execute its e-commerce strategy of adding 500 new online grocery locations to the 600 it expects to have operating at the end of this year and expanding its e-commerce merchandise offerings, it has a chance of pushing e-commerce sales from new initiatives seriously higher.

Even though Wal-Mart said it is committed to completing its $20 billion share repurchase authorization by the end of the 2018 fiscal year, investors looked at the lowered EPS expectations and took the stock down more than 2% on Thursday, to $70.08 in a 52-week range of $56.30 to $75.19. The 12-month consensus target on the stock is $76.19 per share.