Growth prospects of the grocery stores industry are anticipated to be bolstered by persistent consumer spending. Given the industry’s recession-resistant nature, let us discuss why stocks like Albertsons Companies, Inc. (ACI), Jerónimo Martins, SGPS, S.A. (JRONY) and Tesco PLC (TSCDY) can show exceptional growth in the coming months.
But let’s discuss what’s shaping the grocery industry’s prospects before delving deeper into the fundamentals of the stocks mentioned above.
Retail spending saw a noteworthy 3.4% uptick in September, surpassing August’s 2.5% annual growth. American consumers displayed robust spending patterns, greatly aided by the mitigating inflation and a sturdy employment market. Moreover, grocery spending rose 7% in the month, becoming one of the standout performers.
Moreover, using Artificial Intelligence (AI), Machine Learning (ML), and other technologies, grocery retailers are creating faster, more personalized, and better shopping experiences for customers, simultaneously improving their retail operations and optimizing business processes.
The persistent focus on innovation and value creation drives growth, broadens revenue streams, and enhances operational efficiency. An overwhelming 85% of retailers are reported to have explored cutting-edge technologies to enrich customer experiences, and an estimated 35% of suppliers leverage AI technology to harness consumer data.
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. 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, payable to shareholders on November 14. The company’s annual dividend of $0.48 yields 2.21% on the current price level.
ACI’s trailing-12-month Return On Common Equity (ROCE) of 34.63% is 192.4% higher than the industry average of 11.84%. Its trailing-12-month Return On Total Assets (ROTA) of 5.21% is 7.8% higher than the industry average of 4.83%.
For the 12 weeks 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.
ACI’s revenue grew at a CAGR of 5% and 5.5% over the past three and five years, respectively. Its net income and EPS have increased at 11.3% and 6.6% CAGRs over the past three years, respectively.
The consensus revenue estimate of $79.30 billion for the fiscal year ending February 2024 indicates a 2.1% rise year-over-year. The consensus EPS estimate for the current year came in at $2.75. ACI surpassed consensus revenue estimates in three of the four trailing quarters, which is impressive.
Over the past year, the stock has gained 6.6%, closing the last trading session at $21.72. It has gained 4.7% 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 Growth, Value, and Quality. It is ranked #15 in the 39-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 Momentum, Stability, and Sentiment here.
Stock #2: Jerónimo Martins, SGPS, S.A. (JRONY)
Headquartered in Lisbon, Portugal, JRONY operates in the food distribution and specialized retail sectors in Portugal, Poland, and Colombia. The company operates through Portugal Retail; Portugal Cash & Carry; Poland Retail; Colombia Retail; and Others, Eliminations and Adjustments segments.
JRONY’s trailing-12-month ROCE of 31.13% is 162.9% higher than the industry average of 11.84%. Its trailing-12-month asset turnover ratio of 2.79x is 215.1% higher than the industry average of 0.89x.
JRONY’s net sales and services came in at €7.94 billion ($8.40 billion) for the third quarter of 2023, representing a 22% year-over-year growth. Its EBITDA increased 18% from the prior-year quarter to €586 million ($620.40 million). Its net profit rose 23.9% year-over-year to €207 million ($219.15 million), while EPS increased 28.2% from the prior-year period to €0.32.
Over the past three years, JRONY’s EBIT, net income, and EPS rose at respective CAGRs of 21.9%, 28.6%, and 28.6%.
The consensus revenue estimate of $8.67 billion for the fourth quarter (ending December 2023) represents a 14.1% increment year-over-year. Its EPS for the same period is expected to grow 6.3% year-over-year to $0.73. The company has an impressive surprise history, surpassing the consensus revenue and EPS estimates in each of the trailing four quarters.
JRONY’s shares have gained 13% over the past year and 8.1% over the last five days to close the last trading session at $46.38.
JRONY’s robust prospects 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.
It is ranked #9 in the same industry. It has an A grade for Stability and a B for Growth and Quality. To see additional JRONY’s ratings for Value, Momentum, and Sentiment, click here.
Stock #1: 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 stationary brand Paperchase in its stores was reported. Such developments should bolster the company’s revenue stream.
TSCDY’s trailing-12-month asset turnover ratio of 1.42x is 59.8% higher than the industry average of 0.89x. Its trailing-12-month cash from operations of $5.30 billion is 721.5% higher than the industry average of $645 million.
For the 26 weeks that ended August 26, 2023, TSCDY’s revenue and operating profit stood at £34.15 billion ($41.44 billion) and £1.48 billion ($1.80 billion), up 5% and 105.5% year-over-year, respectively. Its adjusted earnings per share stood at 12.26p, up 16.8% year-over-year.
TSCDY’s revenue grew at a CAGR of 5% and 2.1% over the past three and five years, respectively. Its net income and EPS have increased at 9% and 10.9% CAGRs over the past three years, respectively.
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 marginally from the year-ago value to $83 billion.
The stock has gained 21.4% year-to-date to close the last trading session at $9.82. Over the past year, it has gained 32.2%.
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 #6.
To see the other ratings of TSCDY for Momentum, Sentiment, and Quality, click here.
What To Do Next?
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TSCDY shares were trading at $9.79 per share on Tuesday afternoon, down $0.03 (-0.31%). Year-to-date, TSCDY has gained 25.96%, versus a 10.41% 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.
3 Big Box Retailers Stocks With Exceptional Growth Potential StockNews.com
