Following the recent release of Consumer Price Index (CPI) data from January, inflation is flashing warning signs as prices soared 7.5% compare to a year ago, and have increased by 0.6% from the previous month.
Telsey Advisory Group says the Food-At-Home CPI accelerated to 7.4%, with Food PPI remaining high in the double digits at 12.1%.
The firm believes the “uptick in food CPI likely reflects high demand for grocery items as consumers continue at-home consumption as well as retailers/producers raising prices to cover high operating costs, including commodity, labor, and supply chain.”
Telsey expects consumers’ eating habits to turn more frequently towards eating at home and visiting supermarkets, which could provide strong tailwinds for the grocery industry. Additionally, given “essentially flattish operating margins” for most grocers, Telsey sees these stocks benefiting from changing trends.
Telsey analysts have provided their ratings and price targets for seven of the top grocery outlets in the U.S.:
- Amazon.com Inc. (NASDAQ:AMZN) ~ Positive on continued growth in all categories including grocery. Maintains outperform rating with $3,850 price target.
- Albertsons Companies Inc. (NYSE:ACI) ~ Highlights transformation driven by a focus on loyalty, merchandising, and omnichannel. Maintains outperform rating with $37 price target.
- Costco Wholesale Corp. (NASDAQ:COST) ~ Positive on consistency, value offering, and high member loyalty. Maintains outperform rating with $610 price target.
- Grocery Outlet Holding Corp. (NASDAQ:GO) ~ Sees unique opportunist sourcing and profit sharing model. Maintains outperform rating with $30 price target.
- The Kroger Co. (NYSE:KR) ~ Sees some pressures on profitability and limited upside from a valuation perspective. Maintains market perform rating with $47 price target.
- Target Corp. (NYSE:TGT) ~ Highlights fresh merchandising and digital transformation. Maintains outperform rating with $305 price target.
- Walmart Inc. (NYSE:WMT) ~ Notes a push into e-commerce with online grocery and share gains. Maintains outperform rating with $175 price target.
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