Walmart, WMT, Stock Trading: Shares Down 10 Percent On Outlook, $21 Billion In Lost Market Capitalization

Shares of Wal-Mart Stores Inc. (NYSE: WMT) plunged over 10 percent on close to eight times average trading volume yesterday, helping drag the Dow Jones Industrial Average (^DJI) down 157.14 points or 0.92 percent. WMT stock traced its biggest one-day range in at least five years and closed at a new 52-week low.

The markdown, which saw $21 billion in Walmart market capitalization erased, can be attributed to a press release offering financial guidance, issued by Walmart management yesterday.

Shares of Walmart in 2015. [Chart Courtesy Venngage]“We expect earnings per share to decline between 6 and 12 percent in fiscal year 2017, however by fiscal year 2019 we would expect earnings per share to increase by approximately 5 to 10 percent compared to the prior year,” Charles Holley, Walmart’s CFO, was quoted in the release.

Previous to Walmart issuing the press release, Wall Street guidance was calling for 2017 earnings per share (EPS) growth of 4.2 percent, according to Yahoo Finance. Switching from growth of 4.2 percent to an EPS contraction ranging between 6 to 12 percent is proving to be quite a big proposition for the market for WMT shares to swallow.

What’s interesting is that Walmart doesn’t actually report earnings until November 17. Often, moves of the sort WMT shares are experiencing accompany the release of quarterly reports.

“People have known that $10 was coming for a while,” Walmart CEO Doug McMillon was quoted as saying by CNBC.

Walmart is the second big name to see its shares sold going into the beginning of the third quarter earnings season; Yum! Brands Inc. (NYSE: YUM) shares have been hit hard, falling more than 16 percent over the past month, with the move attributable to weak earnings on October 6. The Wall Street consensus analyst view was for EPS of $1.07; Yum! management reported $1.00. YUM stock immediately fell close to 20 percent in the after-hours market. Yum shares have recovered marginally from those levels.

Stock in YUM is down in October. [Chart Courtesy Venngage]For both Walmart and Yum! shares, the market appears to be digesting consensus analyst estimates for 2017 and beyond. The stock market is a forward-looking pricing mechanism. The consensus for WMT 2017 EPS had fallen from $5.01 to $4.73, or about 5.6 percent, over the past 90 days. The story is much the same at Yum!, where estimates have been taken down from $4.08 to $3.71, or about 9.1 percent. The size of the decline in the prices of the respective WMT and YUM shares bears at least some resemblance to the amounts by which EPS forecasts have been reduced.

WMT shares are down 18.5 percent with yesterday’s move, and 2017 EPS estimates are down 5.6 percent, over the past 90 days. Walmart EPS estimates have tumbled 0.30 times compared with the share losses. YUM shares are down 22.84 percent over the past 90 days with EPS estimates for 2016 down 9.1 percent, or roughly 0.40 the amount the shares are down. Because of its unique financial filing dates Walmart speaks of next year as 2017, while Yum! is referring to next year as 2016. Both are big consumer names and the amounts the stocks have sold-off have almost certainly been influenced by 2017 EPS estimate reductions.

Walmart stock trading was hit with its 2017 outlook. [Photo by Joe Raedle / Getty Images]Some relief might be found in the fact that, while both WMT and YUM share losses are unpopular, they seem to tell a common story: that estimates for 2016 have been too high and investors have been expecting too much in terms of profits and sales.

With the digestion of the news, analysts still expect YUM EPS numbers to grow in 2017, just not as quickly as they had expected. With Walmart, an outright WMT EPS contraction is predicted by management; analysts are likely to follow suit.

The names FMR, LLC, the Vanguard Group, Inc., State Street Corporation, and BlackRock Institutional Trust company appear as the top ten institutional holders of YUM shares. All of the same companies appear on the comparable WMT list, except for one: FMR, LLC. Yum! employs 69,810 workers, while Walmart employs 2.2 million, a workforce about two-thirds the population of San Diego County.

Stock in WMT was hit hard yesterday. [Photo by Joe Raedle / Getty Images][Feature Photo by Joe Raedle / Getty Images]