Over the past year, consumers have struggled amid high food prices due to surging inflation and supply chain disruptions. However, the Fed’s aggressive rate hikes have slowed price rises as inflation eased for the third consecutive month in December. The Consumer Price Index (CPI) increased by 6.5% over the last year.
A slowing inflation essentially led to a decline in interest rate hikes as the Fed raised the short-term interest rates for the eighth time since last year by a quarter of a percentage point. However, the economy added more jobs in January than expected.
Fed Chair Powell warned that if the U.S. job market strengthens further in the upcoming months or inflation rises, the central bank might have to raise its benchmark rates higher than its projection.
This is expected to trigger a recession this year. In such a scenario, it could be wise to invest in grocery stocks due to their inelastic demand. Moreover, grocery companies can pass on high prices of raw materials to consumers, which makes them resistant to economic cycles and offers a hedge to investors against a potential recession.
Amid this backdrop, it could be wise for investors to buy fundamentally strong grocery stocks Walmart Inc. (WMT), Albertsons Companies, Inc. (ACI), Casey's General Stores, Inc. (CASY), and Sprouts Farmers Market, Inc. (SFM).
Walmart Inc. (WMT)
WMT engages in the operation of retail, wholesale, and other units worldwide. The company operates through three segments: Walmart U.S.; Walmart International; and Sam's Club.
In terms of the trailing-12-month asset turnover ratio, WMT’s 2.44x is 191.8% higher than the 0.83x industry average. Likewise, its 10.10% trailing-12-month Return on Total Capital is 63.9% higher than the industry average of 6.17%.
On January 12, 2023, subsidiaries of WMT - Walmart Commerce Technologies and Walmart GoLocal announced a partnership with Salesforce, Inc. (CRM) to provide retailers access to technologies and solutions that power frictionless local pickup and delivery for shoppers everywhere.
Senior VP of technology strategy and commercialization at Walmart Global Technology, Anshu Bhardwaj, believes that the technology that powers Store Assist has enabled WMT to fulfill over 830 million orders across over 4,700 WMT stores.
For the fiscal third quarter that ended October 31, 2022, WMT’s total revenues increased 8.7% year-over-year to $152.81 billion. Its adjusted operating income increased 3.9% year-over-year to $6.02 billion. In addition, its adjusted EPS came in at $1.50, representing a 3.4% increase from the year-ago quarter.
WMT’s EPS for the quarter ending April 30, 2023, is expected to increase 6.5% year-over-year to $1.38. Its revenue for the quarter that ended January 31, 2023, is expected to rise 4.5% year-over-year to $158.28 billion.
The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. The stock has gained 11.3% over the past six months to close the last trading session at $143.72.
WMT’s POWR Ratings reflect its strong fundamentals. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the A-rated Grocery/Big Box Retailers industry, it is ranked #8 out of 39 stocks. It has a B grade for Stability and Sentiment.
Click here to see the additional POWR Ratings of WMT (Growth, Value, Momentum, and Quality).
Albertsons Companies, Inc. (ACI)
ACI engages in the operation of food and drug stores. The company offers grocery products, general merchandise, health and beauty care products, pharmacy, fuel, and other items and services. It also manufactures and processes food products for sale in stores.
In terms of the trailing-12-month asset turnover ratio, ACI’s 2.64x is 216.1% higher than the 0.84x industry average. Likewise, its 81.65% trailing-12-month Return on Common Equity is 685.1% higher than the industry average of 10.40%.
On January 12, 2023, fresh food technology company Afresh Technologies and ACI announced the completion of an enterprise rollout of the Afresh predictive ordering and inventory management platform.
ACI’s Chief Sustainability and Transformation Officer, Suzanne Long, believes that the partnership with Afresh helps better manage the company’s inventory in support of its environmental sustainability goals by reducing food waste. In addition, it ensures its customers’ access to fresher products.
ACI’s net sales and other revenue for the third quarter that ended December 3, 2022, increased 8.5% year-over-year to $18.15 billion. The company’s adjusted net income increased 10.5% year-over-year to $505.10 million.
Moreover, its adjusted EBITDA increased 10.2% year-over-year to $1.16 billion, while its adjusted net EPS came in at $0.87, representing a 10.1% increase from the prior-year quarter.
Analysts expect ACI’s EPS and revenue for the fiscal year 2023 to increase 4.3% and 7.9% year-over-year to $3.20 and $77.53 billion, respectively. Over the past three months, the stock has gained 4% to close the last trading session at $21.33.
It is no surprise that ACI has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system. It is ranked #7 in the same industry. It has a B grade for Value, Sentiment, and Quality.
In total, we rate ACI on eight different levels. Beyond what we stated above, we have also given ACI grades for Growth, Momentum, and Stability. Get all ACI ratings here.
Casey's General Stores, Inc. (CASY)
CASY operates convenience stores under the Casey's and Casey's General Store names. It offers a selection of food, beverages, tobacco, and nicotine products; health and beauty aids; automotive products; and other non-food items. The company's stores also provide motor fuel, gasoline, and diesel fuel.
In terms of the trailing-12-month asset turnover ratio, CASY’s 2.71x is 224% higher than the 0.83x industry average. Its 9.54% trailing-12-month Return on Total Capital is 54.8% higher than the 6.17% industry average. Likewise, its 17.87% trailing-12-month Return on Common Equity is 71.9% higher than the industry average of 10.40%.
For the fiscal second quarter that ended October 31, 2022, CASY's total revenue increased 21.9% year-over-year to $3.98 billion. The company’s net income increased 42.1% year-over-year to $137.56 million. In addition, its adjusted EBITDA increased 27.3% year-over-year to $276.30 million, while its EPS came in at $3.67, representing a 41.7% increase from the prior-year quarter.
CASY’s EPS and revenue for the quarter that ended January 31, 2023, are expected to increase 15.7% and 11.7% year-over-year to $1.98 and $3.41 billion, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 12.9% to close the last trading session at $222.12.
CASY’s promising prospects are reflected in its POWR Ratings. The company has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It is ranked #3 in the Grocery/Big Box Retailers industry. In addition, it has a B grade for Growth, Value, Sentiment, and Quality.
To see the other ratings of CASY for Momentum and Stability, click here.
Sprouts Farmers Market, Inc. (SFM)
SFM offers fresh, natural, and organic food products. It offers perishable product categories, such as fresh produce, meat, and seafood, and non-perishable product categories, including grocery, vitamins and supplements, and frozen foods.
In terms of the trailing-12-month gross profit margin, SFM’s 36.70% is 16.4% higher than the 31.53% industry average. Its 2.13x trailing-12-month asset turnover ratio is 154.6% higher than the 0.84x industry average. Likewise, its 25.12% trailing-12-month Return on Common Equity is 141.5% higher than the industry average of 10.40%.
SFM’s net sales for the fiscal third quarter that ended October 2, 2022, increased 5.4% year-over-year to $1.59 billion. Its net income increased 2.9% year-over-year to $65.74 million. Additionally, the company’s EBITDA increased 3.8% year-over-year to $121.54 million, while its net EPS came in at $0.61, representing an 8.9% increase from the prior-year quarter.
SFM’s EPS and revenue for the quarter that ended December 31, 2022, are expected to increase 15.3% and 4.6% year-over-year to $0.37 and $1.56 billion, respectively. The company has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained 27% to close the last trading session at $32.58.
SFM’s POWR Ratings reflect its positive outlook. The stock has an overall rating of B, equating to Buy in our proprietary rating system. It is ranked #19 out of 39 stocks within the Grocery/Big Box Retailers industry. The company has an A grade for Quality.
Click here to see the additional POWR Ratings of SFM for Growth, Value, Momentum, Stability, and Sentiment.
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WMT shares were trading at $144.97 per share on Monday morning, up $1.25 (+0.87%). Year-to-date, WMT has gained 2.24%, versus a 6.82% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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