The grocery industry’s growth prospects appear appealing with the rising consumer expenditure, urbanization, and technological advancements. Therefore, I think fundamentally sound grocery stocks The Kroger Co. (KR), Albertsons Companies, Inc. (ACI), and Village Super Market, Inc. (VLGEA) could be ideal buys for monthly gains.
The global grocery retail market is projected to reach $14.77 trillion by 2030, growing at a CAGR of 6.9%. Various consumer-oriented features of grocery retail stores, such as fair price, quality, variety of products, and convenience, help them stay competitive in the defensive industry.
Rising urbanization, increasing disposable income, and the growth of organized retail are driving growth in supermarkets. Moreover, physical supermarkets and hypermarkets are expected to continue to play a significant role in the retail industry, particularly in emerging economies where the middle class is growing and demand for convenience is increasing.
The online grocery market is projected to expand as consumers prefer digital shopping channels. Automation, robotics, and IoT are expected to revolutionize supply chain management, enhancing efficiency and reducing costs. The diverse options for online payments and the assurances for contactless delivery of the ordered groceries offered by online grocers are expected to contribute to the market's growth.
The online grocery market is expected to be worth $377.4 billion in 2023. Further, the market is projected to reach $3.4 trillion by 2033, growing at a CAGR of 24.6%.
With these favorable trends in mind, let’s delve into the fundamentals of the three best Grocery/Big Box Retailers stocks, beginning with the third choice.
Stock #3: The Kroger Co. (KR)
KR operates as a food and drug retailer in the United States. The company operates combination food and drug stores; multi-department stores; marketplace stores; and price impact warehouses.
On December 11, 2023, KR shared that Murray's Cheese launched its new monthly club subscription program, bringing a best-in-class cheese experience to homes around the country, all year long. New York based, Murray's offers five monthly subscription clubs with one-of-a-kind access to discover exceptional cheeses and pairings.
On December 7, 2023, KR and Soda Health, Inc. announced the launch of a Smart Benefits program, which combines Kroger Health's services with Soda Health's &more platform. This program allows participating Medicare Advantage, Medicaid and employer benefits program recipients to receive certain pharmacy, nutrition services and other eligible benefits at the KRs Family of Pharmacies, in addition to purchasing eligible food and over-the-counter health items.
KR’s trailing-12-month ROCE margin of 17.98% is 59.2% higher than the industry average of 11.30%. Its trailing-12-month asset turnover ratio of 2.93x is 250.4% higher than the industry average of 0.84x.
KR’s sales for the third quarter ended October 31, 2023, came in at $33.96 billion. Net earnings attributable to KR rose 62.3% year-over-year to $646 million. Net earnings attributable to KR per common share rose 61.8% year-over-year to $0.89.
Street expects KR’s revenue to increase 6.4% year-over-year to $37.04 billion for the fourth quarter ending January, 2024. Its EPS is expected to increase 14% year-over-year to $1.13 for the same quarter. It surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
KR’s shares have gained 3.5% over the past month to close the last trading session at $46.14.
KR’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.
It has a B grade for Growth, Value, and Quality. It is ranked #18 out of 38 stocks in the A-rated Grocery/Big Box Retailers industry.
Beyond what is stated above, we’ve also rated KR for Stability, Sentiment, and Momentum. Get all KR ratings here.
Stock #2: Albertsons Companies, Inc. (ACI)
ACI engages in the operation of food and drug stores in the United States. The company’s food and drug retail stores offer grocery products, general merchandise, health and beauty care products, pharmacy, fuel, and other items and services.
On January 10, 2024, ACI and leading business and technology transformation company Capgemini, today a new agreement for media planning, media operations and content creation.
As its global business partner, ACI will leverage Capgemini’s intelligent process automation technology, underpinned by robotic process automation (RPA) and generative artificial intelligence (AI), to unlock deep learning insights for media planning and real-time creative optimizations.
ACI’s trailing-12-month ROCE margin of 62.96% is 457.2% higher than the 11.30% industry average. Its trailing-12-month asset turnover ratio of 2.79x is 234.3% higher than the 0.84x industry average.
For the fiscal third quarter, which ended on December 2, 2023, ACI’s net sales and other revenue increased 2.2% year-over-year to $18.56 billion. Its gross margin improved 1.5% from the year-ago value to $5.20 billion. During the same quarter, the company’s net income amounted to $361.40 million and $0.63 per share, respectively.
Analysts predict ACI’s revenue for the fourth quarter (ending February 2024) to increase 1.7% year-over-year to $18.57 billion, while its EPS for the same quarter is expected to come in at $0.55. Additionally, the company surpassed its revenue and EPS estimates in three of the trailing four quarters.
Shares of ACI have gained 4.8% over the past six months to close the last trading session at $23.05.
It’s no surprise that ACI has an overall rating of B, which equates to Buy in our proprietary rating system.
ACI has a B grade for Value and Quality. It is ranked #14 in the same industry.
In addition to the POWR Ratings highlighted above, one can access ACI’s ratings for Momentum, Growth, Stability, and Sentiment here.
Stock #1: Village Super Market, Inc. (VLGEA)
VLGEA is a nationwide chain of supermarkets that offers various goods, such as prepared foods, frozen goods, dairy products, meat, produce, and seafood. Additionally, it offers non-food items through retail and online stores, including general merchandise, liquor, pharmacy products, and health and beauty products.
VLGEA’s trailing-12-month ROCE of 12.09% is 7% higher than the industry average of 11.30%. Its trailing-12-month asset turnover ratio of 2.26x is 171.2% higher than the industry average of 0.84x.
In the fiscal first quarter that ended October 28, 2023, VLGEA’s sales stood at $536.35 million, up 3.2% year-over-year. The company’s gross profit rose 2.5% year-over-year to $152.95 million, and operating income came in at $14.15 million. Moreover, its net income increased 4.5% year-over-year to $11.59 million.
Over the past six months, the stock has gained 10.7% to close the last trading session at $25.23.
VLGEA’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
The stock has an A grade for Stability and Value and a B in Quality. It is ranked #4 in the same industry.
Click here to access the additional VLGEA ratings (Growth, Sentiment, and Momentum).
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
KR shares were trading at $45.68 per share on Thursday afternoon, down $0.46 (-1.00%). Year-to-date, KR has declined -0.07%, versus a -0.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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