Amid inflationary pressures and economic uncertainties, the grocery industry appears insulated due to the obligatory nature of grocery spending. Predictably, consumers pare back unessential expenses when faced with economic crunches, concentrating their spending on essentials.
Given this backdrop, fundamentally robust grocery stocks Casey's General Stores, Inc. (CASY), George Weston Limited (WNGRF), and Ingles Markets, Incorporated (IMKTA) could be solid buys now.
Grocery prices reported a 3% annual growth in August, putting considerable strain on consumer budgets. Nevertheless, the grocery industry has fared well amid such challenges due to the inelastic demand for its products. The persistent demand allows these retailers to pass on the rising costs to the consumers without seeing a significant drop in sales. Escalating prices typically fail to discourage consumers from purchasing essentials, ensuring steady demand within the sector.
In August 2023, the Consumer Price Index (CPI) rose 0.6% sequentially and 3.7% annually. Nevertheless, supported by easing inflation and a resilient jobs market, American consumers showed a strong propensity for spending.
American retail spending demonstrated a moderate improvement from July to August, marking its fifth consecutive month of growth despite a challenging economic climate. The U.S. retail sales saw a 0.6% monthly growth in August 2023, signaling buoyant consumer spending and a revitalized economic activity.
Mastercard SpendingPulse projects that, excluding automobile expenditures, U.S. retail sales could surge by 3.7% year-over-year during the forthcoming holiday season, which spans from November 1 to December 24.
Persistent emphasis on innovation and efforts toward value creation catalyzes growth, diversifies revenue sources, and enhances operational performance. An impressive 85% of retailers reported experimenting with novel technologies to elevate customer experience, while 35% of suppliers employ AI technology to better utilize consumer data.
Grocery chain companies have widened their digital footprint in response to the widespread adoption of e-commerce and rising demand for swift delivery services. The online grocery market is projected to surge by $740.88 billion by 2027, growing at a 13.1% CAGR.
The global food and grocery retail market is forecasted to reach $14.78 trillion by 2030, expanding at a 3% CAGR, propelled by increasing disposable incomes and evolving consumer preferences.
In light of these encouraging trends, let's look at the fundamentals of the three best Grocery/Big Box Retailers stocks, beginning with number 3.
Stock #3: Casey's General Stores, Inc. (CASY)
CASY operates convenience stores under the Casey’s and Casey’s General Store names. Its stores offer pizza, donuts, breakfast items, sandwiches, and tobacco and nicotine products.
Last month, CASY acquired 63 convenience stores from EG America, LLC, a subsidiary of EG Group Ltd. The stores are in Kentucky and Tennessee and operate under the Minit Mart and Certified Oil banners.
At its September meeting, CASY’s board of directors voted to pay a quarterly dividend of $0.43 per share, payable to the shareholders on November 15. It pays an annual dividend of $1.72 per share, translating to a dividend yield of 0.63%.
Its four-year average yield is 0.70%. CASY’s dividend payouts have grown at CAGRs of 7% and 8% over the past three and five years, respectively. The company has increased dividends for 23 consecutive years.
CASY’s trailing-12-month cash from operations of $834.88 million is 65.3% higher than the industry average of $505 million. Also, its trailing-12-month ROCE, ROTC, and ROTA of 17.96%, 9.53%, and 7.64% are 59.3%, 47.1%, and 77.8% higher than the industry averages of 11.28%, 6.48%, and 4.30%, respectively.
For the fiscal first quarter that ended July 31, 2023, CASY’s total revenue stood at $3.87 billion. Its net income and net income per common share stood at $169.24 million and $4.52, up 10.7% and 10.5% year-over-year, respectively.
CASY’s adjusted EBITDA increased 7.6% from a year-ago quarter to $315.45 million. As of July 31, 2023, CASY’s total current assets stood at $1.02 billion, compared to $920.96 million as of April 30, 2023.
Street expects CASY’s revenue to increase 2% year-over-year in the fiscal second quarter ending October 2023 to $4.06 billion. EPS is expected to come at $3.47. Moreover, CASY topped consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 38.3% over the past year to close the last trading session at $274.09. Over the past six months, it gained 29.4%. It has a 60-month beta of 0.83.
CASY’s POWR Ratings reflect its promising outlook. 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, with each factor weighted to an optimal degree.
CASY also has a B grade for Sentiment and Quality. It is ranked #12 out of 39 stocks in the A-rated Grocery/Big Box Retailers industry.
To access additional ratings for CASY’s Growth, Value, Momentum, and Stability, click here.
Stock #2: George Weston Limited (WNGRF)
Headquartered in Toronto, Canada, WNGRF provides food, drug retailing, and finance services globally. Its Loblaw segment provides grocery, pharmacy, health and beauty, apparel, general merchandise, and financial services, while Choice Properties owns, manages, and develops a portfolio of commercial and residential properties across Canada.
On June 16, the company entered into an Automatic Share Purchase Plan (ASPP) with a broker to facilitate repurchasing WNGRF’s common shares under its Normal Course Issuer Bid (NCIB). During the effective period of the ASPP, the company’s broker may purchase common shares when the company would not be active in the market. Share repurchases could increase shareholder value.
WNGRF pays an annual dividend of $2.04 per share, translating to a dividend yield of 1.86%. Its four-year average yield is 1.82%. WNGRF’s dividend payouts have grown at CAGRs of 9.2% and 6.9% over the past three and five years, respectively.
WNGRF’s trailing-12-month cash from operations of $3.84 billion is 661% higher than the industry average of $505 million. Also, its trailing-12-month ROCE and ROTC of 27.44% and 8.87% are 143.4% and 36.9% higher than the industry averages of 11.28% and 6.48%, respectively.
For the fiscal second quarter that ended June 17, 2023, WNGRF’s revenue stood at CAD13.88 billion ($10.27 billion), up 7% year-over-year. Its operating income stood at CAD1.10 billion ($813.06 million), up 69.3% from the year-ago quarter.
Its adjusted net earnings available to common shareholders of the company from continuing operations and adjusted net earnings per common share from continuing operations stood at CAD377 million ($278.91 million) and CAD2.68, up 14.9% and 20.2% year-over-year, respectively. Its adjusted EBITDA increased 9.1% from the year-ago value to CAD1.73 billion ($1.28 billion).
Street expects WNGRF’s revenue for the third quarter (ending September 2023) to increase 3.1% year-over-year to $13.51 billion. The company surpassed consensus revenue estimates in three of the trailing four quarters.
WNGRF’s shares have gained 2.6% over the past year to close the last trading session at $109.39. It has a 60-month beta of 0.41.
WNGRF’s POWR Ratings reflect this robust outlook. It has an overall rating of B, translating to Buy in our proprietary rating system.
WNGRF has an A grade for Stability and a B for Quality. Within the same industry, it is ranked #10.
Beyond what we stated above, we also have WNGRF’s ratings for Growth, Value, Momentum, and Sentiment. Get all WNGRF ratings here.
Stock #1: Ingles Markets, Incorporated (IMKTA)
IMKTA operates a chain of supermarkets that offers food products, including grocery, meat, and dairy products, produce, frozen foods, and other perishables, and non-food products, including fuel centers, pharmacies, health and beauty care products, general merchandise, and private label items.
On July 13, IMKTA paid a cash dividend of $0.165 per share on its class A common stock and $0.15 on its class B common stock. The annual rate is $0.66 and $0.60 per share, respectively. Its four-year average yield is 1.12%.
IMKTA’s trailing-12-month asset turnover ratio of 2.49x is 174% higher than the industry average of 0.91x. Also, its trailing-12-month ROCE, ROTC, and ROTA of 17.59%, 10.37%, and 9.49% are 56%, 60.1%, and 122.8% higher than the industry averages of 11.28%, 6.48%, and 4.26%, respectively.
For the fiscal third quarter that ended June 24, 2023, IMKTA’s net sales stood at $1.43 billion, while its gross profit amounted to $338.10 million. Its income from operations came at $67.31 million.
Its net income stood at $48.26 million, while its earnings per common share, class A and B, came at $2.54 and $2.36, respectively. As of June 24, 2023, IMKTA’s cash and cash equivalents stood at $280.75 million, compared to $267.20 million as of September 24, 2022.
IMKTA’s shares have gained marginally intraday to close the last trading session at $75.27. It has a 60-month beta of 0.67.
IMKTA’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
IMKTA also has an A grade for Value and a B for Stability and Quality. It is ranked #8 within the Grocery/Big Box Retailers industry.
Click here for the additional POWR Ratings for Growth, Momentum, and Sentiment for IMKTA.
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WNGRF shares were trading at $112.07 per share on Thursday afternoon, up $2.68 (+2.45%). Year-to-date, WNGRF has declined -8.77%, versus a 13.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
Top 3 Grocery Stocks Leading the Pack This Month StockNews.com
