While the grocery industry is known for its resilient nature during macroeconomic turbulence, the current scenario of easing inflation should act in the industry’s favor. Moreover, the ongoing holiday season is further enhancing the industry’s prospects.
Given the backdrop, in this article, we explore the fundamentals of three grocery stocks, Target Corporation (TGT), Walmart Inc. (WMT), and Albertsons Companies, Inc. (ACI), which might benefit from this holiday season.
While high inflation has posed challenges for consumer budgets throughout the year, there is a notable sense of optimism. The Consumer Price Index (CPI) reported a 0.1% increase in November, marking a 3.1% rise from the previous year.
Although the monthly rate signaled an increase from the stagnant CPI reading in October, the annual rate demonstrated a decrease after reaching 3.2% in the preceding month.
Moreover, the heightened consumer spending, attributed to steep holiday discounts, should bode well for grocery retailers. In the 2022 holiday season, online shoppers contributed $211.70 billion in spending, indicating a year-over-year growth of 3.5%.
This year, the expenditure is expected to be driven by unprecedented discounts. Adobe forecasts that online holiday sales in the United States for the ongoing holiday shopping season (November 1 to December 31) will reach $221.80 billion, marking a 4.8% year-over-year growth.
The forecasted rise in online holiday sales for this year highlights Americans' growing preference for digital shopping. According to Statista, an increasing number of Americans are opting for online platforms to satisfy their grocery requirements, with online sales expected to constitute 13.5% of the overall grocery market in 2023.
Additionally, the anticipated surge in online grocery shopping sales, reaching nearly $190 billion by 2024, is attributed to enhanced convenience and improved delivery choices in the country.
Looking ahead, the online grocery market is poised for expansion, driven by consumers' sustained preference for digital shopping channels. In addition, the integration of automation, robotics, and the Internet of Things (IoT) is set to transform supply chain management, improving efficiency and cutting costs.
The online grocery market is projected to hit a staggering $3.39 trillion by 2033, growing at a robust CAGR of 24.6% during the forecast period of 2023 to 2033.
In light of such encouraging trends and prospects, let’s dive deeper into the fundamentals of the featured Grocery/Big Box Retailers stocks, beginning with number three.
Stock #3: Target Corporation (TGT)
TGT operates as a general merchandise retailer in the United States, offering apparel, shoes, beauty and personal care products, baby gear, paper products, and pet supplies. In addition, the company provides dry grocery, dairy, frozen food, beverages, candy, snacks, deli, bakery, meat, and food service.
On December 10, TGT paid its shareholders a quarterly dividend of $1.10 per share. The company’s annual dividend of $4.40 translates to a 3.16% yield on the prevailing prices, while its four-year average dividend yield is 2.13%.
Its dividend payouts have grown at CAGRs of 17.6% and 11.6% over the past three and five years, respectively. Also, TGT has a record of 55 years of consecutive dividend growth.
In the fiscal third quarter, which ended on October 28, 2023, TGT’s sales amounted to $25 billion, while its operating income rose 28.9% year-over-year to $1.32 billion. Additionally, the company’s net earnings came in at $971 million and $2.10 per share, representing increases of 36.4% and 35.5% from the prior-year quarter, respectively.
The consensus revenue estimate of $31.82 billion for the fiscal fourth quarter (ending January 2024) reflects a 1.4% rise year-over-year. The consensus EPS estimate of $2.40 for the same quarter indicates a 27.1% increase year-over-year. Moreover, the company topped its EPS estimates in each of the trailing four quarters, which is impressive.
Over the past three months, TGT’s shares have soared 18.8% to close the last trading session at $139.37.
TGT’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value, Momentum, and Sentiment. In the 38-stock A-rated Grocery/Big Box Retailers industry, it is ranked #22. Click here to see TGT’s ratings for Growth, Stability, and Quality.
Stock #2: 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.
On November 21, WMT announced its plans to introduce parcel stations to its existing 4,000 stores operating as delivery hubs. These parcel stations are designed to further expedite the transportation of goods to customers’ homes by leveraging the company's Private Fleet for the delivery of a broader range of online orders.
The concept of a parcel station is similar to a miniature post office, emphasizing its role in efficiently handling the receipt and delivery of packages. This development underscores WMT’s dedication to leverage its extensive physical presence and logistics capabilities to optimize the online shopping experience for its customers.
WMT’s revenue for the fiscal third quarter (ended October 31, 2023) increased 5.2% year-over-year to $169.80 billion. Its operating income came in at $6.20 billion, up 130.1% from the year-ago value. Moreover, the company’s net income amounted to $453 million and $0.17 per share versus a net loss of $1.79 billion and $0.66 per share in the same period last year, respectively.
Street expects WMT’s revenue for the fiscal fourth quarter (ending January 2024) to increase 3.9% year-over-year to $160.09 billion. While its EPS for the same period is expected to come in at $1.64. Furthermore, its EPS is projected to improve by 7.7% annually over the next five years.
The company has an excellent surprise history, surpassing its revenue and EPS estimates in each of the trailing four quarters.
WMT’s shares have surged 10.2% over the past nine months and 9.2% year-to-date to close the last trading session at $154.80.
WMT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has a B grade for Momentum and Stability. Within the same A-rated industry, it is ranked #20. Click here to see the other ratings of WMT for Growth, Value, Sentiment, and Quality.
Stock #1: 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 November 14, ACI paid its shareholders a quarterly dividend of $0.12 per share. The company’s annual dividend of $0.48 translates to a 2.11% yield on the prevailing prices, while its four-year average dividend yield is 11%. The company’s dividend payouts have grown at a CAGR of 68.7% over the past three years.
On September 8, ACI and The Kroger Co. (KR) officially agreed to sell select stores, banners, distribution centers, offices, and private label brands to C&S Wholesale Grocers, LLC, as part of their previously announced merger on October 14, 2022.
The proposed merger between KR and ACI aims to deliver significant benefits to consumers, employees, and communities. Through an extensive divestiture plan, the merger will expand access to fresh, affordable food, offering a strong alternative to non-union retailers.
For the fiscal second quarter, which ended on September 9, 2023, ACI’s net sales and other revenue increased 2.1% year-over-year to $18.29 billion. Its gross margin improved marginally from the year-ago value to $5.04 billion. During the same period, the company’s net income amounted to $266.90 million and $0.46 per share, respectively.
Analysts predict ACI’s revenue for the third quarter (ended November 2023) to increase 1.2% year-over-year to $18.36 billion, while its EPS for the same period is expected to come in at $0.65. Moreover, its EPS is projected to improve by 8% per annum over the next five years.
Additionally, the company surpassed its revenue estimates in three of the trailing four quarters, which is promising.
The stock has surged 17.8% over the past nine months to close the last trading session at $22.79.
It’s no surprise that ACI has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has a B grade for Value and Quality. Out of 38 stocks in the same industry, it is ranked #9.
In addition to the POWR Ratings we’ve stated above, we also have ACI’s ratings for Growth, Momentum, Stability, and Sentiment. Get all ACI ratings 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.
WMT shares were trading at $156.98 per share on Friday afternoon, up $2.18 (+1.41%). Year-to-date, WMT has gained 12.40%, versus a 25.78% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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