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 Tesco PLC (TSCDY), Albertsons Companies, Inc. (ACI), and Weis Markets, Inc. (WMK) could be worth investing in now.
Let’s discuss what’s shaping the grocery industry’s prospects before delving deeper into the fundamentals of the stocks mentioned above.
The CPI for all food increased 0.2% from April 2023 to May 2023, and food prices were 6.7% higher year-over-year. The food-at-home (grocery store or supermarket food purchases) CPI increased 0.1% from April 2023 to May 2023, up 5.8% in May 2023 from the year-ago period.
This indicates that consumers have been spending money on necessities like food and groceries. Moreover, using 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 growth of e-commerce and the widespread return of store-shopping experiences are expected to influence the grocery sector’s performance this year. According to SkyQuest, the global online grocery market is expected to reach $2.17 trillion by 2030, growing at a CAGR of 25.3%.
Moreover, grocery and supermarket stocks belong to the broader consumer staples sector and 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, grocery stocks TSCDY, ACI, and WMK, with notable fundamental strength, could be wise portfolio additions now.
Tesco PLC (TSCDY)
Headquartered in Welwyn Garden City, the United Kingdom, TSCDY operates as a grocery retailer in the United Kingdom, the Republic of Ireland, the Czech Republic, Slovakia, and Hungary. It offers grocery products through its stores and online. It provides banking and insurance services.
TSCDY’s forward EV/Sales of 0.42x is 74.1% lower than the industry average of 1.63x. Its forward EV/EBITDA and EV/EBIT multiples of 6.55 and 10.83 are 45.5% and 30.9% lower than the industry averages of 12.01 and 15.67, respectively.
TSCDY’s trailing-12-month asset turnover ratio of 1.36x is 52.6% higher than the industry average of 0.90x. Its trailing-12-month cash from operations of $4.45 billion increased significantly year-over-year to $399.41 million.
For the fiscal first quarter that ended May 27, 2023, TSCDY’s total sales stood at £15.17 billion ($19.24 billion), up 9% year-over-year, while online sales grew 8.2% from the year-ago quarter.
TSCDY’s net sales increased 7.2% year-over-year for the year ended February 25, 2023, to £65.76 billion ($83.39 billion). Its gross profit for the same period stood at £4.69 billion ($5.95 billion), while operating profit came in at £2.63 billion ($3.34 billion).
Also, its total current assets came in at £12.52 billion ($15.88 billion) for the period that ended February 25, 2023, compared to £11.82 billion ($14.99 billion) for the period that ended February 26, 2022.
The consensus revenue estimate of $87.47 billion for the year ending February 2024 represents a 6.2% increase year-over-year. Its EPS is expected to come in at $0.81 in the same fiscal year.
The stock has gained 20.6% over the past six months to close its last trading session at $9.65. The stock has gained 19.3% year-to-date.
TSCDY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
TSCDY has a B for Stability. Within the A-rated 38-stock Grocery/Big Box Retailers industry, it is ranked #18.
Click here for the TSCDY’s additional POWR Ratings (Growth, Value, Momentum, Sentiment, and Quality).
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 April 11, ACI declared a dividend for the first quarter of the fiscal year 2023 of $0.12 per share of common stock, paid to the stockholders on May 10, 2023. ACI’s annualized dividend rate of $0.48 per share yields 2.21% on prevailing prices. Its four-year average dividend yield is 9.16%. This reflects the cash generation ability of the company.
ACI’s forward EV/Sales multiple of 0.34 is 79% lower than the industry average of 1.63. Its forward EV/EBITDA and EV/EBIT multiples of 6.17 and 10.62 are 48.6% and 32.2% lower than the industry averages of 12.01 and 15.67, respectively.
ACI’s trailing-12-month asset turnover ratio of 2.86x is 216.8% higher than the industry average of 0.90x. Its trailing-12-month cash from operations of $2.85 billion increased 614.5% year-over-year to $399.41 million.
ACI’s net sales and other revenue increased 5.1% year-over-year to $18.27 billion in the fiscal fourth quarter that ended February 25, 2023. Its gross margin grew 2% from the year-ago value to $5.08 billion.
The company’s adjusted net income came in at $459.70 million, representing an increase of 5.2% year-over-year, while its adjusted net income per Class A share rose 5.3% year-over-year to $0.79. Its adjusted EBITDA for the same quarter stood at $1.05 billion.
ACI’s revenue is expected to increase 1.8% year-over-year to $18.24 billion in the fiscal second quarter ending August 2023. Its EPS is expected to come at $0.59 for the same quarter. It surpassed the consensus revenue estimates in each of the trailing four quarters.
The stock gained 8.2% over the past month to close the last trading session at $21.72. Over the past three months, the stock has gained 6.8%.
ACI’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. It also has a B grade for Value and Quality. Within the same industry, it is ranked #17.
In addition to the POWR Ratings we have mentioned above, click here to see the other ratings of ACI for Growth, Momentum, Stability, and Sentiment.
Weis Markets, Inc. (WMK)
WMK is a food retailer that engages in the retail sale of food through a chain of supermarkets. The company operates primarily under the Weis Markets and Weis, Weis Great Meals Start Here, Weis Gas-n-Go, and Weis Nutri-Facts brands.
On April 27, WMK’s Board of Directors declared a quarterly dividend of $0.34 per share, paid to shareholders on May 22. WMK’s annualized dividend rate of $1.36 per share yields 2.13% on prevailing prices. Its four-year average dividend yield is 2.29%. The company’s dividend payouts have grown at CAGRs of 2.6% and 2.2% over the past three and five years, respectively.
In terms of trailing-12-month EV/Sales, WMK is currently trading at 0.33x, 80.1% lower than the industry average of 1.67x. Its trailing-12-month EV/EBITDA of 6.22x is 53.8% lower than the industry average of 13.44x.
WMK’s trailing-12-month asset turnover ratio of 2.47x is 173.1% higher than the industry average of 0.90x. Its trailing-12-month ROTA of 6.15% is 50.2% higher than the 4.10% industry average.
For the fiscal first quarter that ended April 1, 2023, WMK’s revenues increased 3.7% year-over-year to $1.14 billion. Also, its income from operations came in at $32.61 million. Its net income and earnings per share stood at $25.81 million and $0.96, up 27.7% and 27.4% year-over-year, respectively.
The stock has gained 4.1% over the past month to close the last trading session at $63.30.
It’s no surprise that WMK has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Value, Stability, and Quality. The stock is ranked #16 within the Grocery/Big Box Retailers industry.
We’ve also rated WMK for Growth, Momentum, and Sentiment. Get all WMK ratings here.
Is the Bear Market Over?
Investment pro Steve Reitmeister sees signs of the bear market’s return. That is why he has constructed a unique portfolio to not just survive that downturn...but even thrive!
Steve Reitmeister’s Trading Plan & Top Picks >
TSCDY shares were unchanged in premarket trading Thursday. Year-to-date, TSCDY has gained 22.42%, versus a 14.97% 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.
3 Grocery Stocks to Buy Into StockNews.com
