The grocery industry’s growth prospects appear appealing with the consistent demand for its products, solid consumer spending, and technological advancements. Given the industry’s resilient outlook, fundamentally sound grocery stocks Wal-Mart de México, S.A.B. de C.V. (WMMVY), Target Corporation (TGT), and Carrefour SA (CRRFY) could be ideal buys now.
Consumer spending in the U.S. increased to $15.46 trillion in the third quarter of 2023 from $15.34 trillion during the second quarter of 2023. Consumer spending has reached an all-time high in the third quarter, driven by rising disposable income and rapid population growth.
Moreover, consumer spending on groceries remained robust, given their inelastic demand, as people need food and household items on a regular basis.
The global grocery retail market is projected to reach $14.77 trillion by 2030, growing at a CAGR of 6.9% during the forecast period (2023-2030). Several consumer-oriented features of grocery retail stores, including fair price, quality, and variety of products combined with convenience, should drive the attractiveness of retail grocers among consumers.
The online grocery market has exceeded the overall market as more and more consumers prefer online grocery purchases. Online sales accounted for 11.7% of total weekly grocery spending in the last week of November 2023.
U.S. online grocery sales reached $8.10 billion in November, up 5.2% over November 2022’s online grocery sales, according to data from the monthly Brick Meets Click and Mercatus Grocery Shopping Survey.
Other essential aspects encouraging the evolution of the online grocery market are customized shopping experiences, growing demand for eco-friendly and locally sourced products, and faster deliveries. The online grocery market is projected to reach $3.39 trillion by 2033, expanding at a CAGR of 24.6% during the forecast period 2023 to 2033.
Given the industry’s promising prospects, let’s look at the fundamentals of the three best Grocery/Big Box Retailers stocks, starting with the third stock.
Stock #3: Target Corporation (TGT)
TGT is a general merchandise retailer. It provides apparel for women, men, boys, girls, toddlers, infants, and newborns, along with jewelry, accessories, and shoes; beauty and personal care; paper products; and pet supplies. The company also offers dry grocery, dairy, frozen food, beverages, meat, and food service; electronics; furniture; and more.
On December 10, TGT paid a quarterly dividend of $1.10 per share to shareholders of record at the close of business on November 15. The company pays an annual dividend of $4.40, which translates to a yield of 3.13% at the current share price. Its four-year average dividend yield is 2.14%.
Moreover, the company’s dividend payouts have increased at a CAGR of 17.6% over the past three years. Target has raised its dividends for 55 consecutive years.
In terms of forward non-GAAP P/E, TGT is trading at 16.83x, 6.7% lower than the industry average of 18.05x. Likewise, the stock’s forward EV/Sales multiple of 0.77 is 54% lower than the industry average of 1.68. Also, its forward Price/Cash Flow of 9.21x is 30.8% lower than the industry average of 13.31x.
In the third quarter that ended on October 28, 2023, TGT reported a total revenue of $25.40 billion. The company’s operating income increased 28.9% from the year-ago value to $1.32 billion. Its EBITDA grew 26.5% year-over-year to $2.06 billion. The company’s net earnings came in at $971 million, up 36.3% from the prior year’s quarter.
Furthermore, the company’s adjusted EPS grew 36.3% from the previous year’s quarter to $2.10.
As per the updated guidance for the fourth quarter, the company’s adjusted EPS is forecasted to rise to $1.90 - $2.60.
Analysts expect TGT’s revenue and EPS for the fourth quarter (ending January 2024) to increase 1.4% and 27.1% year-over-year to $31.82 billion and $2.40, respectively. Also, the company has topped the consensus EPS estimate in all four trailing quarters, which is remarkable.
Shares of TGT have surged 5.5% over the past month and 6.2% over the past six months to close the last trading session at $140.75.
TGT’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
TGT has a B grade for Sentiment, Momentum, and Value. It is ranked #23 out of 38 stocks in the A-rated Grocery/Big Box Retailers industry.
In addition to the POWR Ratings we’ve stated above, we also have TGT ratings for Growth, Stability, and Quality. Get all TGT ratings here.
Stock #2: Wal-Mart de México, S.A.B. de C.V. (WMMVY)
Headquartered in Mexico, WMMVY owns and operates discount warehouses and stores, hypermarkets, supermarkets, and membership self-service wholesale stores in Mexico and Central America. The company operates nearly 2,198 Bodega Aurrerá discount stores, 294 Walmart hypermarkets, 14 Superama supermarkets, and 85 Walmart Express supermarkets.
WMMVY’s trailing-12-month net income and levered FCF margins of 5.91% and 4.95% are 20.7% and 1.8% higher than the respective industry averages of 4.90% and 4.86%. Likewise, the stock’s trailing-12-month asset turnover ratio of 2.01x is 140.2% higher than the industry average of 0.84x.
WMMVY’s revenue and EBITDA have grown at respective CAGRs of 8% and 7.9% over the past three years. In addition, the company’s EBIT has increased 9.1% over the same timeframe, while its net income and EPS have improved at CAGRs of 17.1% and 17.2%, respectively.
In the third quarter that ended September 30, 2023, WMMVY’s total revenue increased 7.7% year-over-year to $MXN 213.07 billion ($12.62 billion). Its gross profit rose 10.8% year-over-year to $MXN 51.96 billion ($3.08 billion). Its net income came in at $MXN 13.63 billion ($807.06 million) and $MXN 6.40 per share, up 12.2% and 4.9% year-over-year, respectively.
In addition, the company’s EBITDA grew 8.5% year-over-year to $MXN 22.97 billion ($1.36 billion) from the prior year’s quarter. As of September 30, 2023, its total assets came in at $MXN 441.09 billion ($26.12 billion) versus $MXN 426.14 billion ($25.23 billion) as of September 30, 2022.
Street expects WMMVY’s EPS and revenue to grow 16.8% and 14.8% year-over-year to $0.53 and $14.69 billion for the fourth quarter that ended December 2023. For the fiscal year 2024, the company’s revenue is expected to increase 8.7% from the prior year to $55.51 billion, while its EPS is expected to grow 12.4% year-over-year to $1.88.
Over the past month, the stock has gained 9.4% and 13.3% over the past year to close the last trading session at $41.26.
WMMVY’s bright prospects are reflected in its POWR Ratings. The stock has an overall grade of B, translating to a Buy in our proprietary rating system.
WMMVY has a B grade for Stability, Quality, and Momentum. It is ranked #18 among 38 stocks within the A-rated Grocery/Big Box Retailers industry.
To see the other ratings of WMMVY for Value, Growth, and Sentiment, click here.
Stock #1: Carrefour SA (CRRFY)
Based in Massy, France, CRRFY owns stores in various formats and channels internationally. It operates hypermarkets, supermarkets, convenience stores, and cash and carry stores; e-commerce sites; and service stations. The company is also engaged in banking, insurance, and franchise activities; the provision of travel agency services; and more.
On November 30, 2023, CRRFY and Nexity announced the launch of the “Villes et Commerces” property venture, under which Carrefour contributed an initial portfolio of 69 sites. This embarked a milestone in the implementation of the long-term partnership between the two groups, announced on 6 July 2023.
This long-term partnership will allow Carrefour and Nexity to develop mixed-used programs meeting high environmental performance standards.
On October 31, CRRFY announced the closing of the acquisition of Louis Delhaize Group’s activities in Romania, which encompasses 10 Cora hypermarkets and 9 Cora Urban stores. With this transaction, Carrefour's presence in Romania will be widened with the conversion of hypermarkets located in prime locations under the company’s formats and banners.
In terms of forward Price/Sales, CRRFY is trading at 0.14x, 88.1% lower than the industry average of 1.14x. Likewise, the stock’s forward EV/EBITDA multiple of 6.27 is 44.7% lower than the industry average of 11.34. Also, its forward Price/Cash Flow of 4.36x is 67.2% lower than the industry average of 13.31x.
CRRFY’s revenue has grown at a CAGR of 5.4% over the past three years. The company’s net income has increased 7.9% over the same timeframe, while its EPS and total assets have improved at CAGRs of 11.1% and 5.5%, respectively.
For the third quarter that ended September 30, 2023, CRRFY reported gross sales of €23.63 billion ($25.85 billion), representing like-for-like (LFL) growth of 9%. Sales from France region came in at €10.77 billion ($11.78 billion), up 4.3% LFL, while sales from Latin America region were €6.31 billion ($6.90 billion), an increase of 20.2% LFL.
For the first half that ended June 30, 2023, CRRFY’s net sales increased 7.8% year-over-year to €40.74 billion ($44.57 billion). The company’s net income, Group share, adjusted for exceptional items, was €326 million ($356.65 million), or €0.45 per share, representing increases of 5.2% and 9.8% year-over-year, respectively.
For the fiscal year (ended December 2023), analysts expect CRRFY’s revenue and EPS to grow 8.3% and 5.4% year-over-year to $94.67 billion and $0.40, respectively. The company’s revenue and EPS for the fiscal year 2024 are expected to increase 4% and 31.7% year-over-year to $98.15 billion and $0.53, respectively.
CRRFY’s stock has gained 10.8% over the past year to close the last trading session at $3.70.
TGT’s POWR Ratings reflect its sound fundamentals. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Value and Stability. It also has a B grade for Momentum. Within the A-rated Grocery/Big Box Retailers industry, CRRFY is ranked #12 of 20 stocks.
Click here to access additional ratings of CRRFY for Growth, Sentiment, and Quality.
What To Do Next?
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WMMVY shares were unchanged in premarket trading Monday. Year-to-date, WMMVY has declined -2.27%, versus a -1.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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