Recent data showed households boosted spending in October, with inflation showing signs of slowing down. This is particularly positive for the grocery and retail sector, which has been largely immune to economic turbulence.
With essential household expenditure expected to keep increasing despite macroeconomic volatility, well-entrenched grocery businesses look like ideal buy-and-forget investments for consistent risk-adjusted returns.
The Kroger Co. (KR)
KR operates primarily in the United States as a retailer through multi-department stores, price-impact warehouses, marketplace stores, and food/drug stores. It also manufactures and processes food products for sale online and in supermarkets.
On October 18, KR officially opened its newest Customer Fulfillment Center (CFC) in Romulus, Michigan. In partnership with the Ocado Group (OCDO), the CFC will leverage advanced robotics technology and creative solutions to redefine the customer experience in the greater Detroit area.
On October 14, KR and Albertsons Companies, Inc. (ACI) announced that they have entered into a definitive agreement under which the two complementary organizations with iconic brands and deep roots in their local communities will merge into a single entity.
Under the terms of the merger agreement, KR will acquire all of the outstanding shares of ACI common and preferred stock for an estimated total consideration of $34.10 per share, implying a total enterprise value of approximately $24.6 billion, including the assumption of roughly $4.7 billion of ACI’s net debt.
This merger is expected to lead to greater synergy and significant inorganic growth in KR’s topline.
For the second quarter that ended August 13, 2022, KR’s sales came in at $34.64 billion, up 9.3% year-over-year. During the same period, net earnings attributable to KR came in at $731 million, up 56.5% year-over-year, while its adjusted EPS came in at $0.90, up 12.5% year-over-year.
Analysts expect KR’s revenue for fiscal 2023 to increase 7.5% year-over-year to $148.17 billion. During the same period, its EPS is expected to increase 11.4% year-over-year to $4.10. Moreover, it has impressed by surpassing consensus EPS estimates in each of the four trailing quarters.
The stock has gained 5.1% over the past month and 8.9% year-to-date to close the last trading session at $49.19.
KR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
KR has a grade of B for Value and Quality. It is ranked #7 of 39 stocks in the A-rated Grocery/Big Box Retailers industry.
Click here for additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for KR.
BJ’s Wholesale Club Holdings, Inc. (BJ)
BJ operates warehouse clubs on the eastern coast of the United States. The company offers a curated assortment of merchandise, perishable, gasoline, and other ancillary services.
On November 18, BJ opened its brand-new club in Wayne, New Jersey, marking the retailer’s 24th location in the state. This opening has closely followed November 4 and October 28 openings in New Albany, Ohio, and Greenburgh, New York.
With 234 clubs in the U.S., significant improvement is expected in the club’s top line.
On October 12, BJ announced its partnership with Capital One Financial (COF). According to the terms of the agreement, COF would become the exclusive issuing partner for BJ’s co-brand Mastercard program, expected to launch in early 2023. COF has also entered into an agreement to acquire the existing portfolio of BJ’s credit card accounts.
This partnership is expected to deliver additional value for consumers while increasing sales and brand loyalty for BJ.
BJ’s total revenues increased 12.2% year-over-year to $4.79 billion in the third quarter that ended October 29, 2022. During the same period, the company’s operating income increased 12.8% year-over-year to $191.97 million, while its adjusted EBITDA increased 19.2% year-over-year to $272.31 million.
BJ’s adjusted net income for the quarter came in at $135.83 million or $0.99 per share, up 7.9% and 8.8%, respectively.
Street expects BJ’s EPS for the current fiscal year (ending January 2023) to increase 16.4% year-over-year to $3.78. During the same period, its revenue is expected to increase 15.2% year-over-year to $19.19 billion. The company has surpassed consensus EPS estimates in each of the trailing four quarters.
The stock has gained 14.5% year-to-date to close the last trading session at $75.24.
BJ’s has an overall rating of B, translating to a Buy in our POWR Ratings system. It also has a grade of B for Sentiment.
BJ is ranked #18 of 39 stocks in the Grocery/Big Box Retailers industry.
Click here to see the other ratings of BJ for Growth, Momentum, Stability, Value, and Quality.
Casey’s General Stores, Inc. (CASY)
CASY operates convenience stores under the Casey’s and Casey’s General Store names. It offers a selection of food, beverages, tobacco and nicotine products, health and beauty aids, automotive products, and other non-food items.
On November 1, 2022, CASY announced that it continues to expand its alternative fuel options in response to evolving guest needs and as part of its environmental stewardship efforts. In addition to offering biofuel options, the company added the 11th Tesla Supercharger at its Urbana, Illinois, location. Over the last year, the number of chargers at Casey’s locations has more than doubled.
This is expected to drive growth amid growing inclination among consumers towards sustainable mobility.
CASY’s total revenues came in at $4.46 billion for the first quarter of the fiscal year, ended July 31, 2022, up 40% year-over-year, due to strong inside sales driven by prepared food and dispensed beverages. During the same period, the company’s adjusted EBITDA increased 20.6% year-over-year to $293.21 million because of robust fuel margins as wholesale costs declined from record highs.
As a result, CASY’s net income for the quarter came in at $152.93 million or $4.09 per share, up 28.3% and 28.2% year-over-year, respectively.
For the fiscal year 2023, analysts expect CASY’s revenue to increase 21.9% year-over-year to $15.79 billion. During the same period, its EPS is expected to grow 12.4% year-over-year to $10.23. Moreover, the company has surpassed consensus EPS estimates in three of four trailing quarters.
The stock has gained 5.2% over the past month and 23.2% year-to-date to close the last trading session at $243.02.
CASY’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall A rating translates to a Strong Buy in our proprietary rating system. It has a B grade for Growth, Value, Sentiment, and Quality.
CASY is ranked #2 in the same industry. Click here for the additional POWR Ratings for Momentum and Stability for CASY.
Weis Markets, Inc. (WMK)
WMK operates as a food retailer through a chain of supermarkets in Pennsylvania and surrounding states. Its offerings include frozen foods, groceries, meats, seafood, pharmacy services, beer/wine, fuel, etc.
On November 21, WMK paid a quarterly cash dividend of $0.34 per share, indicating an increase of 6.3% in its dividend payout. The last quarterly cash dividend increase was 3.2% for the fiscal 2021 fourth quarter from $0.31 to $0.32 per share.
WMK pays $1.36 annually as a dividend, representing a yield of 1.56% at the current share price. Its dividend payouts have grown at a 1.6% CAGR over the past five years.
On October 31, WMK’s Chairman, President, and CEO, Jonathan H. Weis, commented, “As customers look for more ways to save, the Weis Gas Rewards Program, Weis Quality private label products, and our Low, Low-Price Programs offer strong value. We will build on our value proposition in the fourth quarter when customers can earn a free turkey or ham for their holiday celebrations based on their purchases.”
WMK’s net sales increased 8.5% year-over-year to $1.15 billion, while its comparable store sales grew 7.9% year-over-year for the fiscal 2022 third quarter ended September 24, 2022. The company’s net income came in at $28.66 million, compared to $28.51 million in the third quarter of 2021. Also, its earnings per share grew to $1.07 from $1.06 in the previous quarter’s period.
The stock has gained 30.2% year-to-date to close the last trading session at $87.21.
WMK’s stellar prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
WMK has an A for Stability and Quality. It is ranked #13 in the same industry.
Click here to see additional POWR Ratings (Growth, Sentiment, Value, and Momentum) for WMK.
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KR shares were trading at $48.54 per share on Thursday afternoon, down $0.65 (-1.32%). Year-to-date, KR has gained 9.36%, versus a -13.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More...
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