As the world continues to deal with the COVID-19 pandemic, record-high oil and gas prices owing to the ban on Russian energy imports are the new threat to the economic recovery. Analysts expect the skyrocketing oil and gas prices along with looming interest rate increases to control inflation to result in a recession this year. Goldman Sachs recently downgraded its growth outlook for both the United States and the European Union in the face of surging prices and declining economic growth rates.
However, since groceries are consumer staples, businesses in this space should see steady demand. The industry is expected to perform steadily even if the economy suffers a recession because grocery stores can easily pass on rising costs to consumers, capitalizing on the inelastic demand for their products.
Therefore, we think fundamentally strong grocery stocks The Kroger Co. (KR), Albertsons Companies, Inc. (ACI), Sprouts Farmers Market, Inc. (SFM), Ingles Markets, Incorporated (IMKTA), and Weis Markets, Inc. (WMK) could be solid bets now.
The Kroger Co. (KR)
KR in Cincinnati, Ohio, operates as a retailer in the United States. The company operates combination food and drug stores, multi-department stores, marketplace stores, and price impact warehouses. Its nearly half a million associates serve more than 11 million customers daily.
On March 3, 2022, Chairman and CEO Rodney McMullen said, "As we look to 2022, we expect the momentum in our business to continue and have confidence in our ability to navigate a rapidly changing operating environment. We remain confident in our growth model and our ability to deliver total shareholder returns of 8% to 11% over time."
For its fourth fiscal quarter, ended Jan. 29, 2022, KR’s sales increased 7.5% year-over-year to $33.05 billion. The company’s net earnings came in at $566 million, compared to a $77 million loss in the year-ago period. Also, its EPS came in at $0.75, compared to a $0.10 loss per share.
Analysts expect KR’s revenue to be $142.31 billion in its fiscal year 2023, representing a 3.2% year-over-year increase. The company’s EPS is expected to rise 5.5% per annum for the next five years. In addition, it has surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 20.8% in price to close yesterday’s trading session at $55.89.
KR’s POWR Ratings reflect its solid prospects. The company has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
In addition, it has an A grade for Growth and a B grade for Value and Quality. KR is ranked #6 of 39 stocks in the A-Rated Grocery/Big Box Retailers industry. Click here to see the additional POWR Ratings for KR (Momentum, Sentiment, and Stability).
Albertsons Companies, Inc. (ACI)
ACI, a leading food and drug retailer in the United States, operates food and drug stores in the United States through its subsidiaries. The Boise, Idaho-based concern operates approximately 2,278 stores under various banners across 34 states.
On Jan.11, 2022, Vivek Sankaran, CEO, said, “We are pleased with our third quarter results as we continue to execute against our transformation strategy. A favorable economic backdrop together with the heroic performance of our frontline retail, distribution, and manufacturing teams contributed to these better-than-expected results.”
ACI’s net sales and other revenue came in at $16.73 billion for the third quarter, ended Dec. 4, 2021, up 8.6% year-over-year. Its net income came in at $424.50 million, up 243.2% year-over-year, while its EPS came in at $0.74, up 270% year-over-year.
Analysts expect ACI’s revenue to be $21.81 billion for the quarter ended May 31, 2022, representing a 6.6% year-over-year rise. It surpassed the Street’s EPS estimates in each of the trailing four quarters. And over the past month, the stock has gained 21% in price to close yesterday’s trading session at $34.41.
ACI’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our POWR Ratings system.
It has an A grade for Growth and a B grade for Value, Quality, and Sentiment. It is ranked #2 in the Grocery/Big Box Retailers industry. Click here to see the additional ratings for ACI (Momentum and Stability).
Sprouts Farmers Market, Inc. (SFM)
SFM offers fresh, natural, and organic food products in the United States. It operates through the Healthy Grocery Stores segment. It employs approximately 35,000 team members and operates more than 360 stores in 23 states nationwide. SFM is headquartered in Phoenix, Ariz.
On Feb. 24, 2022, Jack Sinclair, SFM’s CEO, said, "We made progress in 2021 on our strategic roadmap, which sets us up for continued growth and financial success in the years to come. More importantly, I am amazed each and every day by the incredible contribution and dedication of our approximately 31,000 team members, who are committed to providing a broad array of healthy options at great prices for Sprouts' customers."
SFM’s cash and cash equivalents came in at $245.29 million for the period ended Jan. 2, 2022, compared to $169.70 million, for the period ended Jan.3, 2021. Its total current assets came in at $567.72 million, compared to $465.96 million for the same period in the prior year. Furthermore, its total assets came in at $2.92 billion, compared to $2.81 billion, for the same period in the prior year.
For its fiscal year 2023, analysts expect SFM’s revenue to increase 7.6% year-over-year to $6.86 billion. Its EPS is expected to increase 7.1% per annum for the next five years. In addition, it has surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 4.8% in price to close yesterday’s trading session at $31.01.
SFM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary rating system.
It has an A grade for Quality. Again, within the Grocery/Big Box Retailers industry, it is ranked #28. Click here to see the additional POWR Ratings for Growth, Value, Momentum, Sentiment, and Stability for SFM.
Ingles Markets, Incorporated (IMKTA)
IMKTA operates a chain of supermarkets in the Southeast United States. The Black Mountain, N.C.-based company operates approximately 189 supermarkets under the brand name Ingles and nine supermarkets under the brand name Sav-Mor, and 111 pharmacies and 107 fuel stations.
On Feb. 3, 2022, Robert P. Ingle II, Chairman of the Board, stated, "We were fortunate to have good sales and overall results for the quarter that includes Thanksgiving and Christmas. Despite supply chain disruptions from the omicron variant, our associates did an excellent job of meeting customer needs under difficult circumstances."
IMKTA’s net sales increased 16.9% year-over-year to $1.39 billion for its fiscal year 2022 first quarter, ended Dec. 25, 2021. Its net income came in at $66.19 million, up 23% year-over-year, while its EPS came in at $3.48, up 30.8% year-over-year.
For its fiscal year 2023, analysts expect IMKTA’s revenue to be $4.70 billion, representing a 3% year-over-year rise. In addition, the company’s EPS is expected to increase 14.5% per annum for the next five years. Over the past month, the stock has gained 3.1% to close yesterday’s trading session at $88.26.
IMKTA has an overall A grade, which equates to a Strong Buy in our POWR Ratings system. It has an A grade for Value and a B grade for Growth, Stability, and Quality. Click here to see IMKTA’s rating for Momentum and Sentiment also. It is ranked #3 in the Grocery/Big Box Retailers industry.
Weis Markets, Inc. (WMK)
WMK engages in the retail sale of food in Pennsylvania and surrounding states. The Sunbury, Pa.-based company is a Mid Atlantic food retailer that owns and operates approximately 197 retail food stores across the country.
On March 7, 2022, Weis Markets' Chairman, President, and CEO Jonathan H. Weis, said, “We are proud and grateful for the contributions of our resilient team of associates who adapted to the challenges of supply chain disruptions, a tight labor market, and inflationary pressures. Our associates effectively served our customers and delivered strong financial results for the fourth quarter and fiscal year 2021 that significantly exceeded pre-pandemic levels and our original expectations.”
WMK’s net sales for the fourth quarter, ended Dec. 25, 2021, came in at $1.11 billion, up 8% year-over-year. Its net income was $22.61 million, up 16.4% year-over-year, while its EPS came in at $0.84, up 15.1% year-over-year.
Over the past month, the stock has gained 22.5% in price to close yesterday’s trading session at $75.04.
WMK has an overall A grade, which equates to a Strong Buy in our POWR Ratings system. It has an A grade for Stability and a B grade for Growth, Value, and Quality. The stock is ranked #5 in the Grocery/Big Box Retailers industry. Click here to check additional ratings for Momentum and Sentiment for WMK.
KR shares were trading at $55.97 per share on Monday morning, up $0.08 (+0.14%). Year-to-date, KR has gained 24.23%, versus a -11.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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