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Consumer ETFs to Buy as Wal-Mart Beats & Raises View
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Wal-Mart (WMT - Free Report) reported blockbuster third-quarter fiscal 2019 results. The mega retailer topped estimates on the top and the bottom lines driven by strength in the e-commerce business. It raised its fiscal year guidance, inspiring optimism about the company’s growth prospects.
Earnings in Focus
Earnings per share came in at $1.08, beating the Zacks Consensus Estimate by 6 cents and improving from the year-ago earnings of $1.00. Revenues increased 1.4% year over year to $124.89 billion and were ahead of the consensus mark of $124.86 billion. U.S. same-store sales grew 3.4% in the quarter.
Online sales jumped 43%, indicating that the retailer’s e-commerce business is booming. Wal-Mart expects online sales to grow 40% for the fiscal year. According to the latest data from eMarketer, Wal-Mart is expected to overtake Apple (AAPL - Free Report) as the third largest e-commerce retailer in terms of sales this year, behind Amazon (AMZN - Free Report) and eBay (EBAY - Free Report) . The mega-retailer is expected to take 4% of U.S. e-commerce sales, up from 3.3% last year (read: Should You Take a Bite Into the Beaten-Down Apple ETFs?).
This is especially true as the company has been on an acquisition spree. It is buying brands aimed at millennial shoppers to compete with Amazon in categories like apparel and home goods, while also scaling up its grocery business. Wal-Mart recently bought lingerie retailer Bare Necessities after purchasing plus-sized clothing startup Eloquii a week earlier.
Based on strong momentum, the brick-and-mortar retailer raised its fiscal-year guidance. Earnings per share are now expected in the range of $4.75-$4.85 compared with $4.65-$4.80 previously. U.S. same-store sales are estimated to increase at least 3%, up from the previous expectation of about 3%.
Market Impact
Despite the strong results, shares of WMT dropped 2% on the day and crushed its average daily volume figures as more than 16.1 million shares moved hands compared with 8.8 million on average. Though Wal-Mart belongs to a bottom-ranked Zacks industry (bottom 37%), it currently carries a Zacks Rank #3 (Hold) and has a top VGM Score of A.
Consequently, ETFs having the highest allocation to the world's largest brick-and-mortar retailer have been in focus. Below, we have highlighted six of them:
This fund provides exposure to the 25 largest retail firms by tracking the MVIS US Listed Retail 25 Index. Of these, WMT occupies the third position in the basket with 9.7% share. The ETF has a certain tilt toward specialty retail, which accounts for 31% of the portfolio while Internet direct marketing (20%), hypermarkets (15%), and departmental stores (12%) round off the next three spots. The product has amassed $127.9 million in its asset base and charges 35 bps in annual fees. Volume is light as it exchanges nearly 21,000 shares per day. RTH has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Retail ETFs in Focus Ahead of Q3 Brick-and-Mortar Earnings).
Consumer Staples Select Sector SPDR Fund (XLP - Free Report)
This is the most-popular consumer staples ETF with AUM of $9.6 billion and follows the Consumer Staples Select Sector Index. The fund charges 13 bps in fees per year from investors and trades in heavy volume of nearly 15.2 million shares a day. In total, the fund holds about 32 securities in its basket with Wal-Mart taking the fourth spot at 8.5%. 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 has a Zacks ETF Rank #3 with a Medium risk outlook.
Fidelity MSCI Consumer Staples Index ETF (FSTA - Free Report)
This fund tracks the MSCI USA IMI Consumer Staples Index, holding 88 stocks in its basket. Out of these, WMT takes the fourth spot with 8% share. The ETF is widely diversified across beverages, food and staples retailing, household products, food products, and tobacco. It has amassed $512 million in its asset base, while trading in moderate volume of around 141,000 shares a day on average. It charges 8 bps in annual fees from investors and has a Zacks ETF Rank #4 (Sell) with a Medium risk outlook.
This fund manages a $4.4 billion asset base and has exposure to a basket of 91 consumer stocks by tracking the MSCI US Investable Market Consumer Staples 25/50 Index. It charges a fee of 10 bps per year and trades in a good volume of around 139,000 shares. Here, WMT occupies the fourth position in the basket with 7.8% allocation. The product is widely spread across soft drinks, household products, packaged foods & meat, hypermarkets & super centers, and tobacco that make up for a double-digit allocation each. The fund has a Zacks ETF Rank #3 with a Medium risk outlook (read: Shrug Off Rate Fears, Consumer Staples ETFs Are on a Tear).
iShares Evolved U.S. Discretionary Spending ETF (IEDI - Free Report)
This is the newly debuted actively-managed ETF in the space on Mar 21 and employs data science techniques to identify companies with exposure to the discretionary spending sector. Holding 228 stocks in its basket, Wal-Mart occupies the third position with 6.7% share. The fund has accumulated $5.4 million in its asset base and charges 18 bps in fees per year. Volume is paltry as it exchanges 1,000 shares a day on average.
John Hancock Multifactor Consumer Staples ETF
This product also targets the consumer staples sector emphasizing factors (smaller cap, lower relative price, and higher profitability) that academic research has linked to higher expected returns by tracking the John Hancock Dimensional Consumer Staples Index. Holding 51 stocks in its basket, WMT takes the third spot at 6.2% share. Food products takes the largest share in terms of industrial exposure with 29.5% while food and staples retailing, beverages, and household products round off the next three spots. The fund has accumulated $26.9 million in AUM and trades in a paltry volume of about 10,000 shares. It has a Zacks ETF Rank #4 (see: all Consumer Staples ETFs here).
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Consumer ETFs to Buy as Wal-Mart Beats & Raises View
Wal-Mart (WMT - Free Report) reported blockbuster third-quarter fiscal 2019 results. The mega retailer topped estimates on the top and the bottom lines driven by strength in the e-commerce business. It raised its fiscal year guidance, inspiring optimism about the company’s growth prospects.
Earnings in Focus
Earnings per share came in at $1.08, beating the Zacks Consensus Estimate by 6 cents and improving from the year-ago earnings of $1.00. Revenues increased 1.4% year over year to $124.89 billion and were ahead of the consensus mark of $124.86 billion. U.S. same-store sales grew 3.4% in the quarter.
Online sales jumped 43%, indicating that the retailer’s e-commerce business is booming. Wal-Mart expects online sales to grow 40% for the fiscal year. According to the latest data from eMarketer, Wal-Mart is expected to overtake Apple (AAPL - Free Report) as the third largest e-commerce retailer in terms of sales this year, behind Amazon (AMZN - Free Report) and eBay (EBAY - Free Report) . The mega-retailer is expected to take 4% of U.S. e-commerce sales, up from 3.3% last year (read: Should You Take a Bite Into the Beaten-Down Apple ETFs?).
This is especially true as the company has been on an acquisition spree. It is buying brands aimed at millennial shoppers to compete with Amazon in categories like apparel and home goods, while also scaling up its grocery business. Wal-Mart recently bought lingerie retailer Bare Necessities after purchasing plus-sized clothing startup Eloquii a week earlier.
Based on strong momentum, the brick-and-mortar retailer raised its fiscal-year guidance. Earnings per share are now expected in the range of $4.75-$4.85 compared with $4.65-$4.80 previously. U.S. same-store sales are estimated to increase at least 3%, up from the previous expectation of about 3%.
Market Impact
Despite the strong results, shares of WMT dropped 2% on the day and crushed its average daily volume figures as more than 16.1 million shares moved hands compared with 8.8 million on average. Though Wal-Mart belongs to a bottom-ranked Zacks industry (bottom 37%), it currently carries a Zacks Rank #3 (Hold) and has a top VGM Score of A.
Consequently, ETFs having the highest allocation to the world's largest brick-and-mortar retailer have been in focus. Below, we have highlighted six of them:
VanEck Vectors Retail ETF (RTH - Free Report)
This fund provides exposure to the 25 largest retail firms by tracking the MVIS US Listed Retail 25 Index. Of these, WMT occupies the third position in the basket with 9.7% share. The ETF has a certain tilt toward specialty retail, which accounts for 31% of the portfolio while Internet direct marketing (20%), hypermarkets (15%), and departmental stores (12%) round off the next three spots. The product has amassed $127.9 million in its asset base and charges 35 bps in annual fees. Volume is light as it exchanges nearly 21,000 shares per day. RTH has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Retail ETFs in Focus Ahead of Q3 Brick-and-Mortar Earnings).
Consumer Staples Select Sector SPDR Fund (XLP - Free Report)
This is the most-popular consumer staples ETF with AUM of $9.6 billion and follows the Consumer Staples Select Sector Index. The fund charges 13 bps in fees per year from investors and trades in heavy volume of nearly 15.2 million shares a day. In total, the fund holds about 32 securities in its basket with Wal-Mart taking the fourth spot at 8.5%. 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 has a Zacks ETF Rank #3 with a Medium risk outlook.
Fidelity MSCI Consumer Staples Index ETF (FSTA - Free Report)
This fund tracks the MSCI USA IMI Consumer Staples Index, holding 88 stocks in its basket. Out of these, WMT takes the fourth spot with 8% share. The ETF is widely diversified across beverages, food and staples retailing, household products, food products, and tobacco. It has amassed $512 million in its asset base, while trading in moderate volume of around 141,000 shares a day on average. It charges 8 bps in annual fees from investors and has a Zacks ETF Rank #4 (Sell) with a Medium risk outlook.
Vanguard Consumer Staples ETF (VDC - Free Report)
This fund manages a $4.4 billion asset base and has exposure to a basket of 91 consumer stocks by tracking the MSCI US Investable Market Consumer Staples 25/50 Index. It charges a fee of 10 bps per year and trades in a good volume of around 139,000 shares. Here, WMT occupies the fourth position in the basket with 7.8% allocation. The product is widely spread across soft drinks, household products, packaged foods & meat, hypermarkets & super centers, and tobacco that make up for a double-digit allocation each. The fund has a Zacks ETF Rank #3 with a Medium risk outlook (read: Shrug Off Rate Fears, Consumer Staples ETFs Are on a Tear).
iShares Evolved U.S. Discretionary Spending ETF (IEDI - Free Report)
This is the newly debuted actively-managed ETF in the space on Mar 21 and employs data science techniques to identify companies with exposure to the discretionary spending sector. Holding 228 stocks in its basket, Wal-Mart occupies the third position with 6.7% share. The fund has accumulated $5.4 million in its asset base and charges 18 bps in fees per year. Volume is paltry as it exchanges 1,000 shares a day on average.
John Hancock Multifactor Consumer Staples ETF
This product also targets the consumer staples sector emphasizing factors (smaller cap, lower relative price, and higher profitability) that academic research has linked to higher expected returns by tracking the John Hancock Dimensional Consumer Staples Index. Holding 51 stocks in its basket, WMT takes the third spot at 6.2% share. Food products takes the largest share in terms of industrial exposure with 29.5% while food and staples retailing, beverages, and household products round off the next three spots. The fund has accumulated $26.9 million in AUM and trades in a paltry volume of about 10,000 shares. It has a Zacks ETF Rank #4 (see: all Consumer Staples ETFs here).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>