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Wal-Mart ETFs to Buy on Blockbuster Q3 Results

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Wal-Mart (WMT - Free Report) reported blockbuster third-quarter fiscal 2018 results. The mega retailer continued its long streak of positive earnings surprise as it beat estimates for the ninth consecutive quarter. It also topped revenue estimates and offered an upbeat guidance for the holiday quarter and the fiscal year.

Per Bespoke Investment Group, this is only the second time since 2001 when Wal-Mart came up with the combination of an earnings and revenue beat as well as an encouraging outlook.

Q3 Results in Focus

Earnings per share came in at $1.00, beating the Zacks Consensus Estimate by 3 cents and improving from the year-ago earnings of 98 cents. Revenues increased 4.2% year over year to $123.2 billion and were ahead of the consensus mark of $121 billion.

The company recorded the highest quarterly U.S. sales growth in nearly a decade driven by e-commerce surge and rising U.S. same-store sales. U.S. same store sales grew for the thirteenth consecutive quarter, climbing 2.7% year over year with a 1.5% increase in traffic sales. U.S. e-commerce sales jumped 50% (read: E-Commerce Face-Off: Wal-Mart Vs. Amazon ETFs).

The discount chain delighted investors with an upbeat outlook for the key holiday quarter. It expects U.S. same-store sales to grow 1.5-2%. It also raised its fiscal earnings per share guidance from $4.30-$4.40 to $4.38-$4.46. The midpoint of the guidance is much above the Zacks Consensus Estimate of $4.38.

Market Impact

Given the solid domestic growth and guidance, the stock had its biggest rally in more than nine years. It rose 10.9% to an all-time high on the day and is just a fraction away from becoming a triple-digit stock. Meanwhile, WMT crushed the volume figure as nearly 38.1 million shares exchanged hands compared with around 8.6 million on an average.

The stock is clearly outperforming the industry, having soared 44.2% this year so far compared with the latter’s 20.2% increase. Though Wal-Mart has a poor Zacks Industry Rank in the bottom 32%, it currently carries a Zacks Rank #3 (Hold) and a top VGM Style Score of A (read: Online vs. Offline Retail: Recent ETF Winners).

Consequently ETFs having the highest allocation to the world's largest brick and mortar retailer will be in focus in the days ahead. Investors should closely monitor the movement in these funds and grab the opportunity when it arises. These ETFs have seen smooth trading following Wal-Mart’s results and have a Zacks ETF Rank #2 (Buy).

iShares Edge MSCI Multifactor Consumer Staples ETF CNSF

This fund targets companies that have the potential to outperform the broader U.S. consumer staples sector and tracks the MSCI USA Consumer Staples Diversified Multiple-Factor Capped Index. Holding 28 stocks in its basket, Wal-Mart takes the second spot, accounting for 9.9% of the portfolio. In terms of industrial exposure, about 60% of the portfolio is dominated by food, beverage and tobacco while food & staples retailing, and household and personal product take the remainder with a double-digit exposure each. CNSF has attracted $2.5 million in its asset base and trades in a meager volume of about 200 shares. It charges 35 bps in fees per year and has gained 1.6% following Wal-Mart results.

First Trust Nasdaq Retail ETF FTXD

The fund follows the Nasdaq US Smart Retail Index and holds 48 stocks in its basket. WMT occupies the top position in the basket with 8.9% of the assets. While broadline retailers and specialty retailers make up for a bigger chunk at 26.9% and 18.3%, respectively, apparel retailers, drug retailers, and home improvement retailers round off the next three spots. FTXD has accumulated $1 million since its debut last September and trades in nearly 1,000 shares a day on an average. Its expense ratio is 0.60%. The product was up 0.9% on the day (read: 7 ETF Picks for November).

Fidelity MSCI Consumer Staples Index ETF FSTA

This fund tracks the MSCI USA IMI Consumer Staples Index, holding 101 stocks in its basket. Out of these, WMT takes the fifth spot with 7.03% share. The ETF is widely diversified across beverages, food and staples retailing, household products, food products, and tobacco. It has amassed $287.7 million in its asset base while trading in a moderate volume of around 64,000 shares a day on an average. It charges 8 bps in annual fees from investors and has gained 1.6% following Wal-Mart results.

VanEck Vectors Retail ETF RTH

This fund provides exposure to the 26 largest retail firms by tracking the MVIS US Listed Retail 25 Index. Of these, WMT occupies the third position in the basket with 6.7% share. The ETF has a certain tilt toward specialty retail, which accounts for 31% of the portfolio while Internet direct marketing (23%), hypermarkets (12%), and departmental stores (10%) round off the next three spots. The product has amassed $51.4 million in its asset base and charges 35 bps in annual fees. Volume is light as it exchanges nearly 11,000 shares per day. RTH gained 2% post WMT results.

Consumer Staples Select Sector SPDR Fund XLP

This is the most popular consumer staples ETF with AUM of more than $8 billion and follows the Consumer Staples Select Sector Index. The fund charges 14 bps in fees per year from investors and trades in heavy volume of nearly 10.6 million shares a day. In total, the fund holds about 34 securities in its basket with Wal-Mart taking the sixth spot at 5.2%. From a sector look, beverages takes the largest share at 25.6% while household products, food and staples retailing, food products and tobacco account for a double-digit allocation each. XLP was up 1.4% on the day (see: all Consumer Staples ETFs here).

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