Inflation cooled for the tenth consecutive month as April’s Consumer Price Index (CPI) rose 0.4% sequentially and 4.9% year-over-year. Despite easing considerably from last year’s peak, inflation remains above the Fed’s 2% target.
Although the Fed was exploring the possibility of pausing rate hikes, the recently reported robust macroeconomic data has increased the possibility of another rate hike this month.
Amid tighter credit conditions and further rate hikes, the economy is likely to enter a recession. During challenging economic conditions, big-box retailers do well as they mostly sell non-discretionary items.
Amid this backdrop, it could be wise to consider buying fundamentally strong big-box retailers stocks such as Koninklijke Ahold Delhaize N.V. (ADRNY), Casey’s General Stores, Inc. (CASY), and PriceSmart, Inc. (PSMT).
Before diving deeper into the fundamentals of these stocks, let’s discuss why big-box retailers are likely to do well in the coming months.
Despite the Fed’s best efforts to bring inflation down, it remains above its comfort level. The economy added 339,000 jobs in May, much higher than estimates indicating the labor market’s strength. Moreover, the economy’s strength can be gauged from April’s 0.8% rise in consumer spending.
Retail sales rebounded in April by rising 0.4% sequentially and 1.6% year-over-year. According to the National Retail Federation, retail sales will grow between 4% and 6% in 2023 to reach between $5.13 trillion and $5.23 trillion.
Another rate hike due to the solid macroeconomic data might push the economy toward a recession. During times of economic uncertainty, big-box retailers are likely to perform well as they mostly sell essential items, helping them perform better than other sectors. Therefore, it could be wise to consider buying the featured stocks.
Now, let’s take a close look at their fundamentals.
Koninklijke Ahold Delhaize N.V. (ADRNY)
ADRNY Headquartered in Zaandam, the Netherlands, ADRNY operates retail food stores and e-commerce in the U.S. and Europe. They offer a wide range of products, including groceries, household items, electronics, and pharmacy products.
It operates its supermarkets, convenience stores, and online stores under the Food Lion, Stop & Shop, Giant Food, The Giant Company, Hannaford, FreshDirect, Gall & Gall, Delhaize, and others.
Its 17.07% trailing-12-month Return on Common Equity is 67.8% higher than the 10.17% industry average. Its 7.31% trailing-12-month Return on Total Capital is 16.2% higher than the 6.29% industry average. Likewise, its 1.85x trailing-12-month asset turnover ratio is 104.4% higher than the industry average of 0.90x.
For the fiscal first quarter ended March 31, 2023, ADRNY’s net sales increased 9.4% year-over-year to €21.62 billion ($23.23 billion). The company’s operating income increased 0.4% year-over-year to €822 million ($883.49 million). Its online sales increased 9.2% year-over-year to €2.25 billion ($2.41 billion). Also, its EPS came in at €0.57, representing an increase of 6.3% year-over-year.
Street expects ADRNY’s revenue for the quarter ending June 30, 2023, to increase 8% year-over-year to $23.86 billion. Its EPS for the fiscal year ending December 31, 2023, is expected to increase 3.3% year-over-year to $2.81. Over the past year, the stock has gained 16.5% to close the last trading session at $31.23.
ADRNY’s POWR Ratings reflect strong prospects. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #2 out of 37 stocks in the A-rated Grocery/Big Box Retailers industry. It has an A grade for Stability and Quality and a B for Value. Click here to see ADRNY’s rating for Growth, Momentum, and Sentiment.
Casey’s General Stores, Inc. (CASY)
CASY operates convenience stores under the Casey’s and Casey’s General Store names. It offers a wide range of products, including food, beverages, tobacco, fuel, and more.
Its 18.23% trailing-12-month Return on Common Equity is 79.2% higher than the 10.17% industry average. Likewise, its 3.16% trailing-12-month Capex/Sales is marginally higher than the 3.16% industry average. Its 2.64x trailing-12-month asset turnover ratio is 192.1% higher than the 0.90x industry average.
CASY’s total revenue for the fourth quarter ended April 30, 2023, came in at $3.33 billion. Its adjusted EBITDA increased 0.9% year-over-year to $166.92 million. The company’s net income came in at $56.09 million. Also, its EPS came in at $1.49.
Analysts expect CASY’s revenue for the quarter ending January 31, 2024, to increase 6% year-over-year to $3.53 billion. For the fiscal year ending April 30, 2025, its EPS is expected to increase 7% year-over-year to $11.48. It surpassed consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 12.6% to close the last trading session at $218.16.
CASY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Value and Quality. It is ranked #14 in the same industry. To see the other ratings of CASY for Growth, Momentum, Stability, and Sentiment, click here.
PriceSmart, Inc. (PSMT)
PSMT owns and operates U.S.-style membership shopping warehouse clubs in the U.S., Central America, the Caribbean, and Colombia. The warehouse clubs sell brand-name and private-label consumer products, essential goods, fresh produce, prepared foods, and other ancillary services.
In terms of the trailing-12-month levered FCF margin, PSMT’s 3.14% is 16.8% higher than the 2.69% industry average. Its 9.23% trailing-12-month Return on Total Capital is 46.8% higher than the 6.29% industry average. Likewise, its 2.32x trailing-12-month asset turnover ratio is 157.2% higher than the industry average of 0.90x.
For the second quarter ended February 28, 2023, PSMT’s total revenues increased 10% year-over-year to $1.14 billion. The company’s adjusted net income rose 22.5% year-over-year to $38.54 million. In addition, its adjusted EPS came in at $1.25, representing an increase of 21.4% year-over-year.
For the quarter ended May 31, 2023, PSMT’s EPS and revenue are expected to increase 67.7% and 6.8% year-over-year to $1.04 and $1.10 billion, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. The stock has gained 22.5% year-to-date to close the last trading session at $74.46.
PSMT’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Stability, and Sentiment. It is ranked #4 out of 37 stocks in the Grocery/Big Box Retailers industry. Click here to see PSMT’s ratings for Momentum and Quality.
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ADRNY shares were trading at $31.34 per share on Monday afternoon, up $0.11 (+0.34%). Year-to-date, ADRNY has gained 10.83%, versus a 13.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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