Although surging commodity prices affected consumer demand last year, with the Consumer Price Index (CPI) declining for the sixth consecutive time in December, consumer sentiments have improved.
Food prices also showed signs of slowing down. The food CPI, including food-at-home and food-away-from-home, fell to a 0.3% month-over-month rise in December from 0.5% in November. Similarly, food CPI’s year-over-year growth receded to 10.4% in December from 10.6% in November.
According to recently released data from the University of Michigan, the consumer sentiment index measured 64.9 for January 2023, marginally up from the preliminary reading of 64.6 earlier this month and 9% higher than December’s final reading.
In the future, the growth of e-commerce and the widespread return of store-shopping experiences are expected to influence the grocery sector’s performance this year.
Moreover, since grocery and supermarket stocks tend to be good hedges against market volatilities due to stable demand for their products, the industry could remain resilient even if the economy enters a recession.
Given this backdrop, fundamentally strong grocery store and supermarket stocks Walmart Inc. (WMT), Albertsons Companies, Inc. (ACI), Casey’s General Stores, Inc. (CASY), and Sprouts Farmers Market, Inc. (SFM) might be solid buys now.
Walmart Inc. (WMT)
WMT engages in the operation of retail, wholesale, and other units worldwide. The company operates through three segments: Walmart U.S.; Walmart International; and Sam’s Club.
On January 12, 2023, Walmart Commerce Technologies, one of WMT’s companies, and Walmart GoLocal recently announced a partnership with Salesforce.com Inc. (CRM) to give retailers access to the tools and services that enable frictionless local pickup and delivery for customers worldwide.
Earlier this month, WMT’s drone delivery took flight in Arizona with DroneUp. Earlier, WMT had announced its plans to expand its DroneUp network to reach four million additional households across six states, including Arizona. The new offering should benefit the company’s prospects.
In terms of forward EV/Sales, WMT is trading at 0.75x, 57.4% lower than the industry average of 1.76x. Its forward Price/Sales of 0.64x is 43.2% lower than the industry average of 1.13x.
WMT’s trailing-12-month ROCE of 11.61% is 11.3% higher than the 10.43% industry average. Its trailing-12-month ROTC of 10.10% is 63.9% higher than the 6.17% industry average.
WMT’s total revenue increased 8.7% year-over-year to $152.81 billion in the fiscal third quarter that ended October 31, 2022. Also, its net sales came in at $151.47 billion, up 8.8% year-over-year. Its adjusted EPS came in at $1.50, representing a 3.4% year-over-year rise.
Analysts expect WMT’s revenue to increase 6% year-over-year to $601.99 billion for the fiscal year ending January 2023. Its EPS is estimated to be $6.07. It surpassed EPS estimates in three out of four trailing quarters, which is impressive.
Over the past six months, the stock has gained 7.6% to close the last trading session at $142.15. Over the past year, it has gained 3.4%.
WMT’s POWR Ratings reflect this promising outlook. It has an overall A rating, equating to a Strong Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Stability, Sentiment, and Quality. Within the A-rated Grocery/Big Box Retailers industry, it is ranked #8 out of 39 stocks.
Click here for the additional POWR Ratings for Growth, Value, and Momentum for WMT.
Albertsons Companies, Inc. (ACI)
ACI is engaged in the operation of food and drug stores in the United States. It offers grocery, general merchandise, health and beauty care products, pharmacy, fuel, and other items and services.
On January 10, ACI declared a dividend for the fourth quarter of the fiscal year 2022 of $0.12 per share of common stock, payable on February 10, 2023. This reflects the cash generation ability of the company.
On October 14, 2022, ACI and Kroger Co. (KR) announced a definitive merger agreement to establish a national footprint. The companies intend to invest $1 billion to continue raising associate wages and benefits and enhance customer experience.
ACI’s trailing-12-month levered FCF margin of 6.97% is 146.3% higher than the industry average of 2.83%. Also, its trailing-12-month ROCE of 81.65% is 682.9% higher than the 10.43% industry average.
In terms of forward EV/Sales, ACI is trading at 0.29x, 83.3% lower than the industry average of 1.76x. Its forward Price/Sales of 0.15x is 87% lower than the industry average of 1.13x.
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.
The company’s adjusted net income came in at $505.10 million, representing an increase of 10.5% year-over-year, 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 $77.53 billion in the current fiscal year (ending February 2023). Its EPS is expected to increase 4.7% from the prior year to $3.21. It surpassed the consensus revenue estimates in each of the trailing four quarters.
The stock has gained 3.9% over the past three months to close the last trading session at $21.17. Over the past month, it has gained 2.1%.
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. Within the same industry, it is ranked #7 out of 39 stocks.
In addition to the POWR Ratings we have mentioned above, click here to see the other ratings of ACI 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, nicotine products, health and beauty aids, automotive products, and other non-food items.
On December 6, 2022, CASY declared a quarterly dividend of $0.38 per share, payable on February 15, 2023. This reflects the company’s shareholder return ability.
In terms of forward EV/Sales, CASY is trading at 0.63x, 64.1% lower than the industry average of 1.76x. Its forward Price/Sales of 0.55x is 51.3% lower than the industry average of 1.13x.
CASY’s trailing-12-month ROCE of 17.87% is 71.4% higher than the 10.43% industry average. Its trailing-12-month ROTC of 9.54% is 54.8% higher than the 6.17% industry average.
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 42.1% year-over-year to $137.56 million, and its net income per common share rose 41.7% from the year-ago value to $3.67.
Moreover, its adjusted EBITDA came in at $276.30 million, representing a growth of 27.3% year-over-year in the same period.
Analysts expect its revenue to grow 15.6% year-over-year to $3.52 billion for the fiscal third quarter (ending January 2023). Its EPS is estimated to increase 9.7% year-over-year to $1.88 in the same quarter. The company surpassed the consensus EPS estimates in each of the trailing four quarters.
CASY has gained 13.7% over the past six months to close the last trading session at $230.38. The stock has gained 23% 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 a B grade for Growth, Value, Sentiment, and Quality. It is ranked #5 in the same industry.
Click here to see the additional POWR Ratings for CASY (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, 2022, SFM announced its partnership with DoorDash Inc. (DASH) in select cities for on-demand grocery delivery. Customers can order thousands of fresh, natural, organic products from SFM by visiting DASH’s mobile app or website. This partnership should expand SFM’s customer base.
In terms of forward EV/Sales, SFM is currently trading at 0.72x, 59% lower than the industry average of 1.76x. Its forward Price/Sales of 0.53x is 52.8% lower than the industry average of 1.13x.
SFM’s trailing-12-month ROCE of 25.12% is 140.8% higher than the 10.43% industry average. Its trailing-12-month ROTA of 8.36% is 132.4% higher than the 3.60% industry average.
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 net income per share increased 8.9% year-over-year to $0.61. The company’s adjusted EBITDA rose 3.7% year-over-year to $121.54 million.
Analysts expect SFM’s revenue for the first quarter (ending March 2023) to be $1.71 billion, representing a 4% year-over-year growth. The company’s EPS is estimated to increase 3.4% year-over-year to $0.82 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 17.8% over the past year and 14.6% over the past six months to close its last trading session at $31.67.
It is no surprise that SFM has an overall B rating, which translates to Buy in our proprietary rating system.
It has an A grade for Quality and is ranked #22 in the same industry.
Beyond what we’ve stated above, we have also given SFM grades for Growth, Value, Stability, Momentum, and Sentiment. Get all SFM ratings here.
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WMT shares were trading at $142.48 per share on Tuesday morning, up $0.33 (+0.23%). Year-to-date, WMT has gained 0.49%, versus a 4.98% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors. More...
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