Growth prospects of the grocery industry are anticipated to be bolstered by persistent consumer spending. Given the industry’s recession-resistant nature, let us discuss why Albertsons Companies, Inc. (ACI), Tesco PLC (TSCDY), and Village Super Market, Inc. (VLGEA) could be solid stocks to own this week.
Let’s discuss what’s shaping the grocery industry’s prospects before delving deeper into the fundamentals of the stocks mentioned above.
According to a market report, global retail sales in 2024 are expected to come in at $31.10 trillion. This marks a 4.9% annual increase. This is also the first time retail sales are anticipated to cross the $30 trillion mark.
Moreover, a persistent focus on innovation and value creation drives growth, broadens revenue streams, and enhances operational efficiency. With digital transformation picking up pace, the global Artificial Intelligence (AI) in the retail market is expected to grow from $6 billion in 2023 to $85 billion in 2033, reflecting a 30.3% CAGR.
The growth of e-commerce and the widespread return of store-shopping experiences are expected to influence the grocery sector’s performance this year and beyond. According to SkyQuest, the global online grocery market is expected to reach $2.18 trillion by 2030, growing at a CAGR of 25.3%.
The global food and grocery retail market is forecasted to reach $14.78 trillion by 2030, expanding at a 3% CAGR, propelled by increasing disposable incomes and evolving consumer preferences.
Now that we are clear about the positive outlook for the Grocery/Big Box Retailers industry, let’s discuss the fundamentals of the stocks listed above, starting with the third stock.
Stock #3: Albertsons Companies, Inc. (ACI)
ACI operates as a food and drug retailer in the United States, offering grocery products, general merchandise, pharmaceuticals, fuel, and other products. The company operates stores under multiple brand names, pharmacies, and multiple digital platforms.
On October 17, ACI declared a cash dividend for the third quarter of fiscal 2023 of $0.12 per share of common stock, which was payable to shareholders on November 14. Its annual dividend of $0.48 yields 2.24% on prevailing prices. Its dividend payouts have grown at a CAGR of 68.7% over the past three years.
For the fiscal second quarter ended September 9, ACI’s net sales and other revenue increased 2.1% year-over-year to $18.29 billion. Its gross margin grew marginally from the year-ago value to $5.04 billion. In addition, the company registered an adjusted net income and adjusted net income per Class A common share of $367.70 million and $0.63, respectively.
The consensus revenue estimate of $18.36 billion for the fiscal third quarter (ending November 2023) indicates a 1.2% rise year-over-year. The revenue estimate for the current fiscal year ending February 2024 is projected to reach $79.30 billion, registering year-over-year growth of 2.1%. ACI surpassed consensus revenue estimates in three of the four trailing quarters, which is impressive.
Over the past six months, the stock has gained 6%, closing the last trading session at $21.42. It has gained 3.3% year-to-date.
ACI’s positive outlook is apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
ACI has a B grade for Value and Quality. It is ranked #11 in the 38-stock A-rated Grocery/Big Box Retailers industry.
In addition to the POWR Ratings I’ve just highlighted, you can see ACI’s ratings for Growth, Momentum, Stability, and Sentiment here.
Stock #2: Tesco PLC (TSCDY)
Headquartered in Welwyn Garden City, the United Kingdom, TSCDY is a retailer that offers grocery products through its stores and online. The company is also involved in wholesaling food and drink and provides banking, insurance, and mobile operating services.
On October 30, TSCDY announced a new range of festive decorations in collaboration with Dragons’ Den-backed brand March Muses. The company also introduced the two-pack of Mini Mince Pies. Additionally, the launch of the popular stationery brand Paperchase in its stores was reported. Such developments should bolster the company’s revenue stream.
For the 26 weeks that ended August 26, 2023, TSCDY’s revenue and adjusted operating profit stood at £34.15 billion ($42.52 billion) and £1.48 billion ($1.85 billion), up 5% and 14% year-over-year, respectively.
Its adjusted earnings per share stood at 12.26p, up 16.8% from the previous year’s figures. The company’s profit before tax came in at £1.22 billion ($1.52 billion), registering an improvement of 207.3% from the prior-year quarter.
Street expects TSCDY’s EPS for the fiscal year ending February 2024 to increase 8.3% year-over-year to $0.89, while its revenue for the same year is expected to increase 3.1% from the year-ago value to $84.96 billion.
The stock has gained 26.2% over the past year and 25.2% year-to-date to close the last trading session at $10.13.
TSCDY’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
TSCDY has an A grade for Stability and a B for Growth and Value. Within the same industry, it is ranked #7.
To see the other ratings of TSCDY for Momentum, Sentiment, and Quality, click here.
Stock #1: Village Super Market, Inc. (VLGEA)
VLGEA is a nationwide chain of supermarkets that offers a wide variety of goods, such as prepared foods, frozen goods, dairy products, meat, produce, and seafood. Additionally, it offers non-food items through retail and online stores, including general merchandise, liquor, pharmacy products, and health and beauty products.
On October 26, VLGEA paid quarterly cash dividends of $0.25 to shareholders. With a four-year average dividend of 4.35%, VLGEA pays $1 as dividends annually, translating to a yield of 4.09%.
In the fiscal fourth quarter that ended July 29, 2023, VLGEA’s sales stood at $553.81 million, up 5% year-over-year. The company’s gross profit rose 8.6% year-over-year to $161.06 million, and operating income came in at $20.21 million, representing an increase of 12.2% year-over-year. Moreover, its adjusted net income increased 26.7% year-over-year to $15.57 million.
The stock has gained 6.5% over the past year and 17.4% over the past six months to close the last trading session at $24.43.
VLGEA’s POWR Ratings reflect this positive outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
VLGEA has an A grade for Value and Stability and a B for Quality. Within the same industry, it is ranked first.
To see VLGEA’s additional POWR Ratings for Growth, Momentum, and Sentiment, click here.
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TSCDY shares were trading at $10.25 per share on Thursday afternoon, up $0.12 (+1.18%). Year-to-date, TSCDY has gained 31.88%, versus a 18.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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