Yesterday’s consumer confidence data helped the market catch a much-needed break from the doom and gloom of potential economic slowdown due to interest rate hikes by the Federal Reserve.
With consumer confidence for December rising sharply to its highest level since April and inflation expectations for the year ahead dipping to 6.7%, the signs appear to be encouraging for the Federal Reserve, which is working hard to control inflation without causing a major recession.
In the run-up to year-end festivities, consumer spending is also set to increase, thereby adding more wind to the sails of businesses that have been under pressure by aggressive interest rate hikes and other macroeconomic headwinds for a greater part of the year.
Given this backdrop, it could be wise to invest in quality stocks Sprouts Farmers Market, Inc. (SFM), Universal Logistics Holdings, Inc. (ULH), and TEGNA Inc. (TGNA), whose prospects for the year ahead look as bright as the festivities around.
Sprouts Farmers Market, Inc. (SFM)
SFM operates as a food retailer and grocery store. The company offerings are categorized as perishable and mom-perishable. They include fresh, natural, organic food that includes fresh produce, bulk foods, vitamins and supplements, packaged groceries, meat and seafood, deli, baked goods, dairy products, frozen foods, body care, and natural household items.
On November 2, SFM announced its partnership with DoorDash Inc. (DASH) in select cities, beginning with Phoenix, Arizona, for on-demand grocery delivery. Customers can order thousands of fresh, natural, organic products from SFM by visiting the DoorDash mobile app or website. This is expected to have a positive impact on SFM’s topline.
On October 11, SFM and PRESS Coffee announced a new pilot of the first-ever locally owned PRESS Coffee location inside an SFM store. Dave McGlinchey, chief strategy officer of SFM, remarked that it was an easy decision given the shared mission of both organizations to provide people with fresh, quality, sustainable, and ethically sourced specialty products.
For the third quarter of the fiscal year 2022 ended October 3, SFM’s net sales increased 5.4% year-over-year to $1.59 billion, while the gross profit increased 8.1% year-over-year to $583.65 million. During the same period, the company’s adjusted EBITDA and net income increased 3.8% and 2.9% year-over-year to $121.54 million and $65.74 million, respectively. SFM’s EPS for the quarter increased 8.9% year-over-year to $0.61.
Analysts expect SFM sales and EPS for the fiscal year 2022 to increase 4.7% and 10% year-over-year to $6.39 billion and $2.31, respectively. The company’s impressive earnings history has seen it surpassing consensus EPS estimates in each of the trailing four quarters.
The stock has gained 2% over the past month and 13.5% year-to-date to close the last trading session at $33.79.
SFM’s fundamental strength is reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SFM has an A grade for Quality. It is ranked #20 of 39 stocks in the A-rated Grocery/Big Box Retailers industry.
Click here to see additional POWR Ratings (Growth, Value, Momentum, Stability, and Sentiment) for SFM.
Universal Logistics Holdings, Inc. (ULH)
ULH is a transportation and logistics solutions provider in the United States, Mexico, Canada, and Colombia. The company operates in logistics, intermodal, trucking, and brokerage segments.
On October 27, ULH announced a cash dividend of $0.105 per share of common stock to be paid on January 3, 2023. The company pays $0.42 annually as a dividend, translating to a yield of 1.19% at the current price, comparable to its 4-year average dividend yield of 2%. Its dividend payouts have increased at an 8.5% CAGR over the past five years.
On August 22, Southern Counties Express, Inc., a subsidiary of ULH, announced a new partnership with the International Brotherhood of Teamsters Local Unit 848. This partnership would enable ULH to provide customers with AB5-compliant and reliable services in the Los Angeles and Long Beach drayage market, advancing its capacity footprint in a changing California labor model and continuing to be a leader in the drayage space.
ULH announced its best results for the fiscal year’s third quarter. The company’s operating revenue increased 13.5% year-over-year to $505.7 million, while its operating income increased 318% year-over-year to a record $69.8 million. This was primarily due to the absence of $12.9 million of pre-tax charges that dragged down the result of the third quarter of the previous fiscal.
During the third quarter, ULH’s net income increased 370.9% year-over-year to $48.5 million. This translated to a record quarterly EPS of $1.84 per share, up 384.2% year-over-year.
Analysts expect ULH’s revenue and EPS for the fiscal year 2022 to increase 15.4% and 90.3% year-over-year to $2.02 billion and $6.40, respectively. Moreover, the company has surpassed consensus EPS estimates in the trailing three quarters.
The stock has gained 88.5% year-to-date to close the last trading session at $35.26.
ULH’s positive outlook is reflected in an overall rating of A, translating to a Strong Buy in our POWR Ratings system. It also has an A grade for Growth and a B for Value, Momentum, Sentiment, and Stability.
Unsurprisingly, ULH tops the list of 17 stocks in the A-rated Air Freight & Shipping Services industry. To see all ratings for ULH, click here.
TEGNA Inc. (TGNA)
TGNA operates as a media company. It is involved in providing stories, investigations, and marketing services. The Company also owns multicast networks, including True Crime Network and Quest, and also offers solutions to help businesses reach consumers across television, digital, and over-the-top (OTT) platforms, including Premion, TGNA’s OTT advertising service.
On November 18, TGNA announced that its acquisition by Standard General L.P. had received approval from Team Telecom. With Standard General’s proven track record of increasing investment in local journalism and bringing new ideas and perspectives to local broadcasting, the pending transaction is expected to bring added value to TGNA’s viewers and communities.
On October 26, TGNA declared a regular quarterly dividend of $0.10 per share, payable on January 3, 2023. The company pays $0.38 annually as dividends. This translates to a yield of 1.89% at the current price, comparable to the 4-year average dividend yield of 1.90%. The company’s dividend payouts have increased at 4.9% CAGR over the past five years.
During the third quarter of the fiscal, ended September 30, TGNA’s total revenue came in at a record $803.11 million, up 6.2% year-over-year despite advertising and marketing services (“AMS”) revenue declines as a result of political displacement, absence of last year’s summer Olympics, and macroeconomic headwinds. This was possible as a result of strong growth in political revenue.
TGNA’s adjusted EBITDA for the quarter increased 8.8% year-over-year to a record $265.97 million, while its adjusted operating income increased 11.3% year-over-year to $235.80 million. As a result, the non-GAAP net income attributable to TGNA increased 19.6% and 18.2% year-over-year to $147.01 million or $0.65 per share, respectively.
Analysts expect TGNA’s revenue for fiscal 2022 to increase 10.6% year-over-year to $3.31 billion, while its EPS is estimated to grow 36.2% year-over-year to $2.93 during the same period.
The stock has gained marginally over the past month and 4.4% year-to-date to close the last trading session at $20.11.
TGNA has a B grade for Quality. It is ranked #3 of 12 stocks in the B-rated Entertainment - Broadcasters industry.
Click here for additional POWR Ratings for Growth, Value, Momentum, Stability, and Sentiment.
SFM shares were trading at $33.31 per share on Thursday afternoon, down $0.48 (-1.42%). Year-to-date, SFM has gained 12.23%, versus a -18.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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