In a note released Tuesday morning, Belus Capital's Brian Sozzi said the firm's June 5 initiation of Wal-Mart WMT at Sell with a $71 price target has been "Justified" by all subsequent news flow.
"Wal-Mart is on the cusp of truly delivering a knockout blow to investors." said Sozzi.
According to Sozzi, the knockout will come in the form of a "jab" of a second quarter earnings miss followed by an "uppercut" of weaker-than-expected third quarter earnings and comp guidance.
This negative sentiment is based on inventory growth in the United States outpacing sales growth, pressure on international operating margins and a declining ROIC over the last few years.
Sozzi concluded, "Wal-Mart's share price has underperformed the S&P 500 and Dow Jones Industrial Average since December 2012 in spite of the accelerating U.S. economy. Theoretically, more people returning to work should be unlocking spending power in Wal-Mart's higher margin departments, aiding both margins and comps. The fact it really hasn't happened thus far is alarming."
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