Walmart Stock Forms a Golden Cross as Valuation Worries Linger Ahead of Earnings

Walmart (NASDAQ:WMT) stock dropped sharply after its August earnings report. Since then, however, it has staged a strong comeback and formed a golden cross, a bullish chart pattern, as it edges closer to its all-time high. The rally will face a test when the company reports its financial results.

Walmart Earnings to Show Modest Growth

Walmart, the biggest American retailer, will be in the spotlight this week as it releases its financial results. 

Benzinga data shows that analysts expect the results to show that its revenue continued growing in the third quarter, even as inflation persisted. 

The average analyst estimate is that Walmart’s revenue rose 5.3% in the third quarter to $187.25 billion. Its fourth-quarter guidance is $200 billion, which would bring full-year revenue to $752 billion. Walmart has a long track record of beating analysts’ estimates. 

The company has benefited from the ongoing demand from American consumers. Also, its business has received a boost from its investments in e-commerce operations, which now account for nearly 30% of total sales.

The challenge, however, is that the company’s valuation remains elevated. The results will need to be strong enough to justify it. Walmart has a forward price-to-earnings (P/E) ratio of 44.4, well above the retail sector median of 15 and its own five-year average of 30.

These metrics are much higher than those of other retailers like Home Depot (NYSE:HD) and Target (NYSE:TGT). Also, they are significantly higher than those of the S&P 500 Index, which stands at about 18. 

Despite the valuation concerns, analysts are highly upbeat about Walmart, with Wells Fargo boosting its target from $120 to $135. BTIG Research hiked the target to $140, while Mizuho boosted it to $135. UBS Group hiked it to $149. 

Walmart Has Formed a Golden Cross Pattern

On the charts, the daily chart shows that the WMT stock has been in a strong comeback in the past few months. It jumped from a low of $102 in August to $128. 

Most notably, the stock has formed a golden cross pattern as the 50-day and 200-day moving averages crossed each other. This pattern normally leads to more upside over time. 

Walmart is in the process of forming a cup-and-handle pattern, which is a common continuation sign. Therefore, the stock will likely continue rising as bulls target the upper side of the cup at $134.97. A move above that level will point to more gains, potentially to $150.

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