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Is Walmart/Amazon a Zero-Sum Game?

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Wednesday, February 21, 2018

We saw a market sell-off in the Dow yesterday, due in part to an earnings miss for Walmart’s (WMT - Free Report) Q4 2018. Shares of the world’s biggest retailer sold off nearly 10% yesterday; the Dow 30 was down 1% overall.

Though Walmart missed earnings estimates by 3 cents per share, the company beat on the top-line, and saw growth in comps (for the 14th straight quarter), and store traffic and storage were both up year over year. The Zacks Rank #2 (Buy) company did lower the bottom end of its full-year guidance, but there is not much justification for a 10% sell-off in the shares, in our view.

That is unless you consider that the gains Amazon (AMZN - Free Report) have made in the retail space — obviously, mostly online but now increasing its presence in the big-box space with its acquisition of Whole Foods Market. Three weeks ago, Amazon posted blowout Q4 results with a 143% positive earnings surprise, with net sales up 38% year over year. The Zacks Rank #3 (Hold) company also saw 19% online retail growth for full-year 2017.

Basically, the question that arises here is: Does Amazon’s gain necessarily equate Walmart’s loss?

Based on our current Zacks Ranks for both companies, we would argue that it does not. Walmart, despite its Q4 difficulties — which, by the way, many analysts had predicted — has continued to grow its online business even as Amazon has continued to power ahead. Walmart also seems to have plenty of faith in its CEO Doug McMillion, who recently celebrated his 4th anniversary as the head of the company. In short, those who understand Walmart best are those who tend to see the least problems with the company.

We therefore see the current sell-off in WMT shares as somewhat of a buying opportunity. That said, we also have a slew of Zacks Rank #2 retail companies we cover at this time, including Home Depot (HD - Free Report) , Lowe’s (LOW - Free Report) , TJX Companies (TJX - Free Report) and Macy’s (M - Free Report) . As we enter the thick of retail earnings season, we anticipate strength from the companies on our list yet to report.

Mark Vickery
Senior Editor

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