The stock market is seeing some optimism as the corporate earnings season kicks in. Strong earnings results could mean that the economy is currently in better shape than feared. “3Q and 4Q earnings should confirm fundamentals remain anchored in resilient labor market and Covid reopening,” Dubravko Lakos-Bujas, JPMorgan’s head of global macro research, said.
On the other hand, the Organisation for Economic Co-operation and Development forecasted the U.S. economy would grow 1.5% this year and 0.5% in 2023. Moreover, it stated there is still some possibility that a recent easing in supply constraints and commodity prices could contribute to a faster moderation of inflation than projected.
Despite the market turbulence this year, some stocks navigated the market well, and buying them earlier would have been wise. Here are two such fundamentally strong stocks, The Kroger Co. (KR) and Cardinal Health, Inc. (CAH), which could be worth owning.
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 October 14, KR and Albertsons Companies (ACI) announced that they have entered into a definitive agreement under which the companies will merge, aiming to expand the customer reach and improve proximity to deliver fresh and affordable food to approximately 85 million households with a premier omnichannel experience.
The combined company should drive profitable growth and sustainable value for all stakeholders.
Moreover, on September 16, KR announced the official opening of a new spoke in Birmingham, Alabama, which will operate as a seamless extension of the regional fulfillment center in Atlanta, making Kroger Delivery available to more customers in the greater Birmingham area. The expansion should help drive up the revenue of the company over time.
On September 15, KR declared a quarterly dividend of 26 cents per share to be paid to shareholders on December 1, 2022. Its annual dividend of $1.04 yields 2.47% on prevailing prices. The company’s dividend payouts have increased at a 15.3% CAGR over the past three years and a 12.9% CAGR over the past five years. Additionally, it has a record of 15 years of consecutive dividend growth.
KR’s sales increased 9.3% year-over-year to $34.64 billion in the fiscal second quarter ending August 13. Its operating profit increased 13.7% year-over-year to $954 million. The company’s adjusted EBITDA grew 10.9% from the year-ago value to $7.63 billion, while its adjusted EPS improved 12.5% year-over-year to $0.90.
Analysts expect KR’s revenue for the fiscal year ending January 2023 to come in at $148.32 billion, indicating an increase of 7.6% year-over-year. The company’s EPS is expected to grow 10.6% year-over-year to $4.07 in the same year. The company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in each of the trailing four quarters.
KR has gained 9.1% over the past year to close the last trading session at $42.11.
KR’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
KR has a B grade in Growth, Value, and Quality. It is ranked #7 of 38 stocks in the A-rated Grocery/Big Box Retailers industry. Click here to see the additional POWR Ratings for KR for Momentum, Stability, and Sentiment.
Cardinal Health, Inc. (CAH)
CAH provides various healthcare services and products in the United States, Canada, Europe, and Asia. The company operates through two segments: Pharmaceutical and Medical. It offers customized solutions for hospitals, healthcare systems, pharmacies, clinical laboratories, and at-home patients.
On September 15, CAH and PayrHealth announced a collaboration to help specialty physician practices simplify payor contracting and maximize financial performance. "We are very excited to partner with PayrHealth to bring meaningful efficiencies and cost savings to practices, so they can focus on patient care," said Amy Valley, vice president of Clinical Strategy & Technology Solutions at Cardinal Health.
On September 29, CAH declared a quarterly dividend of $0.50 per share, payable on October 15, 2022. Its current dividend of $1.98 yields 2.91% annually. Moreover, the company’s dividend payouts have grown at a 1% CAGR over the last three years and a 1.6% CAGR over the past five years. The company has a record of 27 years of consecutive dividend growth.
In the fiscal fourth quarter ended June 30, 2022, CAH’s revenue increased 10.6% year-over-year to $47.10 billion. Its non-GAAP operating earnings rose 40.6% from the year-ago value to $450 million. The company’s non-GAAP net earnings attributable to CAH increased 27.3% year-over-year to $289 million, while its non-GAAP EPS attributable to CAH grew 36.4% from the prior-year quarter to $1.05.
The consensus revenue estimate of $198.18 billion for the fiscal year ending June 2023 represents a 9.3% improvement year-over-year. Its consensus EPS estimate of $5.27 for the same year indicates a 4.2% year-over-year growth.
CAH’s shares have increased 40.5% over the past year to close the last trading session at $68.22. It has gained 32.5% year-to-date.
CAH’s strong fundamentals are reflected in its POWR Ratings. The stock's overall A rating translates to Strong Buy in our proprietary rating system.
CAH has a grade of B for Growth, Value, and Quality. Within the Medical – Services industry, it is ranked #4 of 79 stocks. To see additional POWR Ratings (Sentiment, Momentum, and Stability) for CAH, click here.
KR shares were trading at $43.15 per share on Tuesday afternoon, up $1.04 (+2.47%). Year-to-date, KR has declined -3.32%, versus a -21.06% 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.
2 Stocks You'll Be Glad You Bought in 2022 StockNews.com
