Driven by increased consumer spending, rising disposable incomes, technological breakthroughs, and creative delivery methods, the grocery retail industry looks well-positioned for substantial expansion. Moreover, the grocery retail industry enjoys inelastic demand for its products, making grocery stocks reliable investment options in any economic cycle.
Considering these factors, investors could look to buy fundamentally strong grocery retail stocks DFI Retail Group Holdings Limited (DFIHY), Koninklijke Ahold Delhaize N.V. (ADRNY), and Jerónimo Martins, SGPS, S.A. (JRONY).
But before we delve further into the fundamentals of these stocks, let’s explore the industry landscape better.
The grocery industry is considered defensive as it sells products whose demand is inelastic. This helps grocery companies maintain their profit margins irrespective of the economic cycles. Online grocery shopping has been one of the game changers in the industry.
Although grocery prices in October were at a six-month high of 0.3%, U.S. online grocery sales rose 5% year-over-year to $8.20 billion. Apart from online shopping, changing consumer preferences, increasing disposable incomes, diversified product offerings, optimization of supply chains, and the use of technology have been significant growth drivers for the grocery industry.
With inflation on its way down, supply chains easing, omnichannel experience availability, and generative AI and automation, grocery retailers are well-positioned for long-term growth. As per a report by Grand View Research, the global food and grocery retail market size is expected to grow at a CAGR of 3% and reach $14.78 trillion by 2030.
Additionally, global retail sales in 2024 are expected to reach $31.10 trillion, marking a 4.9% increase year-over-year. This is also the first time retail sales are anticipated to cross the $30 trillion mark.
To that end, let us dive into the fundamentals of these three Grocery/Big Box Retailers industry picks, beginning with number three.
Stock #3: DFI Retail Group Holdings Limited (DFIHY)
Based in Quarry Bay, Hong Kong, DFIHY operates as a retailer in Asia. The company operates through five segments: Food, Health and Beauty, Home Furnishings, Restaurants, and Other Retail. The company primarily operates grocery stores under the Wellcome, Yonghui, CS Fresh, Market Place, Giant, Hero, Cold Storage, Mercato, San Miu, Jasons, and Lucky Brands and convenience stores under the 7-Eleven brand.
In terms of forward EV / Sales, DFIHY’s 0.54x is 67.3% lower than the 1.66x industry average. Its 4.39x forward EV/EBITDA is 59.6% lower than the 10.85x industry average. Likewise, its 0.34x forward Price / Sales is 69.9% lower than the 1.12x industry average.
For six months that ended June 30, 2023, DFIHY’s revenue rose marginally year-over-year to $4.57 billion. Its operating profit increased 22.8% over the prior-year quarter to $92.80 billion.
The profit attributable to company shareholders and earnings per share stood at $8.20 million and $0.61, compared to a loss attributable to company shareholders and loss per share of $57.60 million and $4.25 in the year-ago period, respectively.
Street expects DFIHY’s revenue for fiscal 2023 to increase 0.2% year-over-year to $9.19 billion. Over the past month, the stock has gained 7.6% to close the last trading session at $11.65.
DFIHY’s POWR Ratings reflect its promising outlook. It has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B for Growth, Stability, and Quality. Within the A-rated Grocery/Big Box Retailers industry, it is ranked #12 out of 38 stocks. Beyond what we have highlighted above, one can see DFIHY’s additional ratings (Value, Momentum, and Sentiment) here.
Stock #2: Koninklijke Ahold Delhaize N.V. (ADRNY)
Headquartered in Zaandam, the Netherlands, ADRNY operates retail food stores and e-commerce primarily in the United States and Europe. The company’s stores offer produce, dairy, meat, deli, bakery, seafood, and frozen products; grocery, dairy, and beer and wine; floral, pet food, health and beauty care, kitchen and cookware, etc.
On November 8, 2023, Ahold Delhaize USA announced that it agreed to sell its FreshDirect business to Getir as part of its strategic move to focus its investments on its omnichannel retail investments.
On October 30, ADRNY announced the agreement to acquire Romanian grocery retailer Profi Rom Food SRL (Profi) from MidEuropa. This acquisition will help it double the size of its business in Romania. Strong format fit and complementary customer propositions between the Profi and Mega Image brands will help drive sales and profit growth.
In terms of forward EV / Sales, ADRNY’s 0.46x is 72.2% lower than the 1.66x industry average. Its 5.87x forward EV/EBITDA is 46% lower than the 10.85x industry average. Likewise, its 0.29x forward Price / Sales is 74% lower than the 1.12x industry average.
ADRNY’s net sales for the third quarter ended October 1, 2023, stood at €21.93 billion ($23.73 billion). Its net cash from operating activities increased 28.5% year-over-year to €1.44 billion ($1.56 billion). The company’s cash and cash equivalents at the end of the period (excluding restricted cash) increased 22.4% over the prior year quarter to €4.76 billion ($5.15 billion).
Additionally, its operating income came in at €625 million ($676.06 million). Also, its net income stood at €394 million ($426.19 million).
For the quarter ending December 31, 2023, it is expected to increase 1.2% year-over-year to $25.25 billion. Its EPS for fiscal 2024 is expected to increase 3.2% year-over-year to $2.80 billion. The stock has gained 1.9% year-to-date to close the last trading session at $29.23.
It’s no surprise that ADRNY has an overall rating of B, which translates to a Buy in our proprietary rating system.
ADRNY has an A grade for Stability and a B for Value and Quality. Within the same industry, it is ranked #10. In addition to the POWR Ratings stated above, one can check ADRNY’s additional ratings for Growth, Momentum, and Sentiment here.
Stock #1: Jerónimo Martins, SGPS, S.A. (JRONY)
Headquartered in Lisbon, Portugal, JRONY operates in the food distribution and specialized retail sectors in Portugal, Poland, and Colombia. The company operates through Portugal Retail, Portugal Cash & Carry, Poland Retail, Colombia Retail, and Others, Eliminations and Adjustments segments.
In terms of forward non-GAAP PEG, JRONY’s 1.64x is 30.4% lower than the 2.36x industry average. Its 0.56x forward EV / Sales is 66.2% lower than the 1.66x industry average. Likewise, its 0.49x forward Price / Sales is 56.6% lower than the 1.12x industry average.
For the third quarter, which ended September 30, 2023, JRONY’s net sales and services revenue rose 22% year-over-year to €7.94 billion ($8.59 billion). Its EBITDA increased 18.1% over the prior-year quarter to €586 million ($633.88 million). Its net profit attributable to JRONY rose 28.2% year-over-year to €202 million ($218.50 million).
Analysts expect JRONY’s EPS and revenue for the quarter ending December 31, 2023, to increase 7% and 17.3% year-over-year to $0.74 and $8.91 billion, respectively. The company has an impressive surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 20.6% to close the last trading session at $50.98.
JRONY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #9 in the Grocery/Big Box Retailers industry. It has a B grade for Growth, Stability, and Quality. To see the additional ratings of JRONY for Value, Momentum, and Sentiment, click here.
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.
ADRNY shares were trading at $28.95 per share on Wednesday afternoon, down $0.28 (-0.94%). Year-to-date, ADRNY has gained 3.62%, versus a 20.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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