Wal-Mart Stores (WMT: sentiment, chart, options) scored an upgrade from Merrill Lynch today, a bullish note that helped propel the stock to a new annual high of $58.04 in intraday action. The broker noted that, after 3 years of fits and starts, the company's turnaround plan appears to be taking hold. WMT earned an upgrade from "neutral" to "buy," with Merrill enthusing that "Wal-Mart could be positioned as an attractive combination of high return, cash generative stable retailer, and fast growth, emerging market international retailer."

Merrill Lynch also raised WMT's earnings-per-share estimates for 2008 and 2009, increasing them from $3.42 to $3.50 and from $3.78 to $3.84, respectively. "Management's recent increase to its April EPS view suggests that merchandise improvements will trump investment in price leadership," said the broker.

Today's bullish commentary seems well-deserved. WMT is racing up the charts, boosted by a slick ad campaign that promises to help consumers "live better" by saving money amidst an economic downturn. As a result, the shares are trading on a year-to-date gain of nearly 21%, far outpacing the broader Dow Jones Industrial Average (down about 3.6% for the year).

Despite WMT's display of technical muscle, option traders are skeptical. The stock's Schaeffer's put/call open interest ratio of 1.03 is just 4 percentage points away from a 52-week high. In other words, short-term option traders have felt more bearish toward WMT just 4% of the time during the past year. An unwinding of this pessimism could support further gains in the stock.