The food CPI, including food-at-home and food-away-from-home, fell to 0.3% month-over-month in December from 0.5% in November. Although the annual gain remained in double digits, it came in at 10.4% in December compared to 10.6% in November.

Inflation has begun to cool from sky-high levels, and the wage growth in the tight labor market has buoyed the moods of consumers. Moreover, the University of Michigan’s index of consumer sentiment rose 8.2% to 64.6 this month.

Moreover, after rocketing early in the pandemic, grocery e-commerce will likely remain prominent this year. Industry players are making e-commerce options like pickup and delivery faster, more efficient, and overall better experience.

Rachel Dalton, head of retail insights at data analytics firm Kantar, said, “In August last year, roughly 68% of all US shoppers said they consider themselves online grocery shoppers, with varying degrees from e-commerce loyalists to occasional users.”

Also, given the inelastic demand for grocery products, fundamentally strong stocks, The Kroger Co. (KR), Albertsons Companies, Inc. (ACI), Casey’s General Stores, Inc. (CASY) and Sprouts Farmers Market, Inc. (SFM) could be ideal buys in 2023 as recession concerns remain.

The Kroger Co. (KR)

KR operates as a retailer in the United States. The company operates combination food and drug stores, multi-department stores, marketplace stores, and price-impact warehouses.

On December 16, 2022, KR’s Kroger Health, its family of pharmacies, and Prime Therapeutics LLC, a diversified pharmacy benefit manager collectively owned by Blue Cross and Blue Shield Plans, announced a direct agreement for the KR Family of Pharmacies to remain in-network effective from January 1, 2023.

Colleen Lindholz, President of Kroger Health, said, “We look forward to working collaboratively to improve the health outcomes of our collective customers by increasing health access, delivering pricing transparency, and ensuring affordable prices.”

Its annual dividend of $1.04 yields 2.36% on prevailing prices. The company’s dividend payouts have increased at 16.1% and 13.9% CAGRs over the past three and five years, respectively, and the company has 16 years of consecutive dividend growth record.

KR’s sales increased 7.3% year-over-year to $34.20 billion in the fiscal third quarter that ended November 5, 2022. Adjusted net earnings attributable to KR rose 9.2% from the prior-year quarter to $643 million, while its adjusted EPS grew 12.8% from the same quarter the prior year to $0.88.

Street expects KR’s revenue to increase 7.6% year-over-year to $148.32 billion in the current fiscal year ending January 2023. Its EPS is expected to grow 12.5% year-over-year to $4.14 in the current year. It surpassed EPS and revenue estimates in all four trailing quarters, which is impressive.

The stock has gained 2.5% over the past three months to close the trading session at $44.00.

KR’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

In addition, it has a B grade for Value and Quality. KR is ranked #10 out of 39 stocks in the A-rated Grocery/Big Box Retailers industry.

To access additional POWR Ratings for KR for Growth, Momentum, Stability, and Sentiment, click here.

Albertsons Companies, Inc. (ACI)

ACI is engaged in the operation of food and drug stores in the United States. It offers groceries, general merchandise, health and beauty care products, pharmacy, fuel, and other items and services.

On January 12, ACI and Afresh Technologies, a fresh food technology company, announced the completion of an enterprise rollout of the Afresh AI-powered platform deployed in more than 2,000 stores of ACI in seven months.

Suzanne Long, Chief Sustainability and Transformation Officer at ACI, said, “Our partnership with Afresh helps better manage our inventory of fresh fruits and vegetables in support of our goal to eliminate food waste going to landfill by 2030. In addition, it helps to ensure our customers have access to fresher products when shopping with us.”

On January 19, ACI announced that the $6.85 per common share Special Dividend, which was originally scheduled to be paid on November 7, 2022, is now payable on January 20, 2023.

Moreover, on January 10, ACI declared a cash dividend for the fourth quarter of fiscal 2022 of $0.12 per share of common stock, payable on February 10, 2023. It pays an annual dividend of $0.48 which yields 2.30% on the current market price. The company has a four-year average dividend yield of 4.72%.

ACI’s net sales and other revenue increased 8.5% year-over-year to $18.15 billion in the fiscal third quarter that ended December 3, 2022. Its gross margin grew 6% from the year-ago value to $5.12 billion. Adjusted net income grew 10.5% year-over-year to $505.10 million, while its adjusted net income per Class A share rose 10.1% year-over-year to $0.87.

ACI’s revenue is expected to increase 7.9% year-over-year to $77.54 billion in the current fiscal year ending February 2023. Its EPS is expected to increase by 4.7% from the prior year to $3.21. The company has surpassed the consensus revenue estimates in each of the trailing four quarters.

The stock has gained 5% over the past six months to close the last trading session at $20.90.

ACI’s POWR Ratings reflect its solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

It has a B grade for Value, Quality, and Sentiment. In the same industry, it is ranked #7.

In addition to the POWR Ratings mentioned above, click here to see ACI grades for Growth, Momentum, and Stability.

Casey’s General Stores, Inc. (CASY)

CASY operates convenience stores under the Casey’s and Casey’s General Store names. Its stores offer a selection of food, beverages, tobacco and nicotine products, health and beauty aids, automotive products, and other non-food items.

On December 6, CASY declared a quarterly dividend of $0.38 per share, payable on February 15, 2023. Its annual dividend of $1.52 yields 0.69% on prevailing prices. The company has raised its dividend at a CAGR of 6.2% over the past three years and 7.9% over the past five years.

CASY’s total revenue rose 21.9% year-over-year to $3.98 billion in the fiscal second quarter that ended October 31, 2022. Net income increased 42% year-over-year to $137.56 million, and its earnings per share rose 41.7% from the year-ago value to $3.67.

The company is expected to witness revenue growth of 19.3% year-over-year to $15.46 billion during the current fiscal year ending April 2023. Its EPS is estimated to increase 23.4% year-over-year to $11.23 in the same year. The company has surpassed the consensus EPS estimates in each of the trailing four quarters.

CASY has gained 15.4% over the past six months, closing the last trading session at $230.22. The stock has gained 22% over the past year.

CASY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.

The stock has an A grade for Sentiment and a B grade for Quality and Value. It is ranked #4 in the same industry.

Click here to see the additional POWR Ratings for CASY (Growth, Momentum, and Stability).

Sprouts Farmers Market, Inc. (SFM)

SFM offers fresh, natural, and organic food products in the United States. The company offers perishable product categories, including fresh produce, meat, seafood, deli, bakery, floral and dairy, and dairy alternatives; and non-perishable product categories, such as grocery, vitamins and supplements, bulk items, frozen foods, beer and wine, and natural health and body care.

On November 2, SFM announced its partnership with DoorDash Inc. (DASH) in select cities, beginning with Phoenix, Arizona, for on-demand grocery delivery. Customers can order thousands of fresh, natural, organic products from SFM by visiting the DoorDash mobile app or website. This partnership should expand SFM’s customer base.

During the third quarter that ended October 2, 2022, SFM’s net sales increased 5.4% year-over-year to $1.59 billion. Its net income increased 2.9% year-over-year to $65.74 million, while its EPS for the quarter increased 8.9% year-over-year to $0.61. The company’s adjusted EBITDA rose 3.8% year-over-year to $121.54 million.

Analysts expect SFM’s revenue for the fourth quarter ended December 2022 to be $1.56 billion, representing a 4.5% year-over-year growth. The company’s EPS is likely to increase by 14.6% year-over-year to $0.37 for the same quarter. The company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in each trailing four quarters.

SFM has gained 10.8% over the past six months to close its last trading at $30.12.

It is no surprise that SFM has a B grade which translates to Buy in our proprietary rating system. It has an A grade for Quality and is ranked #23 in the same industry.

Beyond what we’ve stated above, we have also given SFM grades for Momentum, Value, Stability, Growth, and Sentiment. Get all SFM ratings here.

KR shares were trading at $43.91 per share on Friday afternoon, down $0.09 (-0.20%). Year-to-date, KR has declined -1.50%, versus a 2.49% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...

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