Stock of the day 15/05/2015 – Wal-Mart Stores Inc/Vodafone Group PLC

Next Tuesday brings big announcements both sides of the pond, as the monolithic Wal-Mart Stores Inc and the much-complained about Vodafone Group PLC reveal their latest results.

Seemingly out of ideas, Wal-Mart’s year has been filled with copycat moves and mega-partnerships ahead of the company’s Q1 2016 earnings release on Tuesday. Wal-Mart had started last year at $78.69 and by October was languishing at $73.28; by the end of 2014 the mega-chain had surged to $85.89. However this positive sentiment failed to carry into 2015, and after spiking at $90.96 in mid-January Wal-Mart began to steadily decline for the next 4 months, leading to a low of $77.32 at the start of May. The stock is currently trading at $78.81.


(Source: IT-Finance.com 15/05/2015)

The biggest news for Wal-Mart is its attempt to take on the rampant success of Amazon Prime. The subscription-based delivery service, which costs $99 a year in the US and has been shown to cause a significant increase in purchases on Amazon once the Prime service is bought, is the envy of many a retailer, and Wal-Mart looks set to try and take it on. With the codename ‘Tahoe’ (no hint as to why), Wal-Mart intends to launch its own subscription-based delivery service in the summer, on an invitation-only basis. Reports suggest it will cost $50 a year and will grant the buyer free 3-day delivery for their orders. The success of this move, of course, remains to be seen; however it does suggest a slight uneasiness from Wal-Mart about its position in the market, alongside a dearth of original ideas.

This sentiment is corroborated by Wal-Mart’s moves in China, which has been somewhat of a troublesome region for the mega-store. The company announced it is partnering with Alibaba to allow its Chinese customers to use the Alipay Wallet to purchase their items, with Alibaba claiming it is also exploring “further collaborations with the supermarket chain”. Once again, Wal-Mart appears to be relying on another company to further its business, instead of striking out on its own. It doesn’t help soothe the claims that Wal-Mart has looked slightly desperate of late.

After Wal-Mart beat its fourth quarter forecasts back in February, analysts are expecting earnings per share of $1.04 for its fiscal first quarter 2016 results, a 5.4% decline on the same figure last year. This is forecast to be joined by only a 1-2% increase in sales after a sluggish performance at the start of 2015 and a 1.2% increase in consolidated revenue to $116.32 billion. These estimates have led analysts to give Wal-Mart a consensus rating of ‘hold’ with a target price of $82.90.

In terms of pre-release preparation, being named the most complained above mobile service provider is hardly great; yet that is the fate of Vodafone Group PLC ahead of its full year 2014 earnings results on Tuesday. An overall slide in 2014, from £2.37 at the start of the year to £2.22 at its end, has seen a slight improvement in 2015. A peak price of £2.45 towards the end of January was the best Vodafone could muster so far, with a fairly steady performance since then seeing a low of £2.15 at the start of March before a gradual increase back up to a current trading price of £2.36.


(Source: IT-Finance.com 15/05/2015)

Interestingly, whilst M&A fever has overtaken the mobile sector as the major players push for ‘quad play’, some of Vodafone’s recent market success has been based on arguments that Vodafone should not be taken over, but instead be split up once its Project Spring network upgrade shows signs of organic revenue growth.

The argument put forth by analysts at the moment is that to inspire some more rapid growth, Vodafone should sell its European business to the Virgin Media owner Liberty Global whilst breaking off its African and Indian divisions to private equity buyers. This may all be academic at the moment, but the prospects of such moves, or indeed any moves, from Vodafone have clearly pleased investors.

Analysts are expecting sales of £42.175 billion, around £1.5 billion lower than last year’s figure; however the headline figure will likely be the turnaround of last year’s £5.27 billion loss into a £1.968 billion pre-tax profit. Troubles with profit may have slightly damaged Vodafone, but the prospect of a 19% rise in earnings in 2016 has been enough for investors to stick around. And despite having a consensus rating of ‘hold’, there has been plenty of Vodafone ‘buy’ ratings, including positive comments from Deutsche Bank, Goldman Sachs and Citigroup, with an average target price of £2.32.