Wal-Mart loses its luster

Wall Street is losing its faith in Wal-Mart (WMT).

Worried about how the company fared in the crucial holiday shopping season, analysts are starting to cut their ratings. JP Morgan was the latest to sock Wal-Mart with a neutral rating, causing the stock to drop more than 1% in midday trading Monday to $54.88.

"We've become increasingly concerned that the company's recent same-store-sales deterioration in the U.S. could be a secular problem that could last multiple years -- not just a few quarters," wrote JP Morgan analyst Charles Grom in a research note. The stock has been a non-starter for more than a decade, and over the past year mostly stayed in the $48 to $56 range.

Grom added that he didn't think Wal-Mart had a great holiday season, but said the downgrade from overweight to neutral wasn't directly related to the retailer's fourth-quarter performance. We'll find out how the company did when it reports its fourth quarter next week, on Feb. 22.

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JP Morgan's downgrade follows a similar one last week from UBS Securities. Analysts there cut the stock's rating to neutral from buy, saying same-store sales could have a tough time in the fourth quarter.

Sources tell The New York Post that Wal-Mart is trying to get rid of excess inventory after a disappointing holiday season, and it has halted orders of fresh merchandise.

Oh, how things have changed. Wal-Mart was optimistic back in November, predicting that sales would finally rise -- after six quarters of consecutive declines -- at stores open at least a year, Reuters reported.

But then huge snowstorms and freezing temperatures brought much of the country to a standstill. Gas prices also rose, putting more pressure on household budgets. And Grom at JP Morgan suspects heightened competition from "niche grocers" and dollar stores.

So Wal-Mart's dreams of sales growth were dashed -- at least in the minds of some analysts.

"Everybody is sensitive to the sales number," one Gilford Securities analyst told Reuters. "Whether or not it is caused by the weather, if it comes up short the stock is going to feel a setback."

In other words, Monday's stock drop was just the appetizer. A disappointing earnings report could send shares down further.