Inflation showing signs of cooling over the past few months has lifted consumer spirits. The University of Michigan’s consumer sentiment index increased this month to 64.6, the highest reading since January 2022.
While optimism regarding the chances of the economy avoiding a recession has been rising, it cannot be ruled off. The World Economic Forum, through a recent poll of economists, found that nearly two-thirds of the respondents believe there will be a recession in 2023.
Moreover, the IMF expects around a third of the global economy to enter a recession in 2023 and has cut its global GDP growth forecast for the year to 2.7%.
Grocery and big box store stocks tend to be good hedges amid market downturns due to inelastic demand for their goods. Moreover, the sector has been evolving amid the adoption of new technologies and the growing online grocery market. The global online grocery market is expected to expand at a CAGR of 25.3% from 2022 to 2030.
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.
In terms of forward EV/Sales, WMT is currently trading at 0.75x, 57.7% lower than the industry average of 1.77x. Its forward Price/Sales of 0.64x is 44.3% lower than the industry average of 1.15x.
WMT’s trailing-12-month ROCE of 11.61% is 9.6% higher than the 10.59% 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 5.8% year-over-year to $605.99 billion in 2023. Its EPS is estimated to rise 4.3% per annum for the next five years. It surpassed EPS estimates in three out of four trailing quarters. Over the past six months, the stock has gained 7.9% to close the last trading session at $142.64.
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 Growth. 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 Value, Momentum, and Quality for WMT.
BJ’s Wholesale Club Holdings, Inc. (BJ)
BJ operates warehouse clubs on the east coast of the United States. It provides perishable, general merchandise, gasoline, and other ancillary services through its websites and mobile app.
On December 7, 2022, BJ announced the opening of their newest club in Midlothian, Virginia, on December 9, 2022. This brings the overall number of US clubs to 235. The new site should boost the company’s revenues.
In terms of forward EV/Sales, BJ is currently trading at 0.65x, 63.3% lower than the industry average of 1.77x. Its forward Price/Sales of 0.49x is 57.7% lower than the industry average of 1.15x.
BJ’s trailing-12-month ROCE of 65.20% is 515.9% higher than the 10.59% industry average. Its trailing-12-month ROTA of 7.58% is 109.3% higher than the 3.62% industry average.
BJ’s total revenue increased 12.2% year-over-year to $4.79 billion for the third quarter ended October 29, 2022. Its net income came in at $129.94 million, up 2.7% year-over-year. Moreover, its EPS came in at $0.95, up 3.2% year-over-year.
BJ’s revenue is expected to increase 15.2% year-over-year to $19.21 billion in 2023. Its EPS is estimated to grow 16% year-over-year to $3.77. It surpassed EPS estimates in all four trailing quarters. The stock has gained 14.4% over the past year to close the last trading session at $69.24.
BJ’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which indicates a Buy in our proprietary rating system. It also has a B grade for Value and Sentiment.
BJ is ranked #21 in the same industry. For BJ’s additional POWR Ratings for Stability, Momentum, Growth, and Quality, click here.
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WMT shares were trading at $143.16 per share on Tuesday afternoon, up $0.52 (+0.36%). Year-to-date, WMT has gained 0.97%, versus a 4.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions. More...
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