Walmart Hikes Wages, Expands Benefits After Tax Reform

Despite touching record highs this week, WMT remains plagued by pessimism

by Patrick Martin

Published on Jan 11, 2018 at 9:59 AM

Wal-Mart Stores Inc (NYSE:WMT) is making headlines this morning, after the blue chip announced it's raising its starting wage to $11 an hour, while giving other eligible full-time employees one-time cash bonuses. It also will be expanding maternity and parental leave benefits. The added benefits can be attributed to the tax law changes that were enacted last month. 

WMT stock has added 45% year-over-year, and touched a record high of $102.35 on Tuesday. Since a late-November bull gap, the stock has consolidated around the century level, and was last seen 0.3% lower at $99.34. Going back further, however, shows that WMT's rising 20-day moving average has guided the stock higher since early October.

Nevertheless, analysts remain skeptical. Of the 24 brokerages covering WMT, 13 rate the shares a "hold" or "strong sell." This implies there is plenty of room for upgrades, should the security continue to climb. 

Meanwhile, Walmart sports a Schaeffer's put/call open interest ratio (SOIR) of 1.11 -- higher than two-thirds of all other readings from the past year. In other words, near-term options traders are more put-heavy than usual right now. An unwinding of pessimism in the options pits could also translate into a tailwind for WMT stock.

The good news for options traders is that WMT's Schaeffer's Volatility Index (SVI) of 15% is in just the 14th percentile of its annual range, pointing to muted volatility expectations priced into near-term options. Furthermore, its lofty Schaeffer's Volatility Scorecard (SVS) of 97 indicates the blue chip has made bigger-than-expected moves on the charts in the past year, relative to what the options market priced in.


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