The equity market benchmark indices are collectively in a downturn. The Dow Jones Industrial Average (DJIA) is 0.3% lower on the week, while the S&P 500 has declined 1.6% week-to-date. And the Nasdaq Composite is deep into correction territory, sliding 3% this week.
Grocery stores and the discount retail industry usually hold up well during stock market volatility. In addition, the U.S. supermarket and grocery store industry’s revenue is expected to hit $765.20 billion in 2022.
Given this backdrop, we think grocery stocks The Kroger Co. (KR), Albertsons Companies, Inc. (ACI), and Ingles Markets, Incorporated (IMKTA) might be solid bets, given their sound fundamentals. These stocks look undervalued at their current price levels.
The Kroger Co. (KR)
KR is a Cincinnati, Ohio-based retailer that operates a combination of food and drug stores, multi-department stores, marketplace stores, and price-impact warehouses. The company’s offerings also include manufactured and processed food products and fuel.
In terms of forward EV/Sales, KR is currently trading at 0.37x, which is 80.5% lower than the 1.91x industry average. Also, its 0.24 forward Price/Sales is 82.8% lower than the 1.41 industry average.
On January 27, KR announced that it will be offering more delivery services by adding a spoke facility in Louisville, Ky. The expansion of the company’s fulfillment network in Kentucky should prove beneficial by providing customer service and access to fresh food.
On January 21, KR declared a quarterly dividend of 21 cents per share, payable to shareholders on March 1. This reflects the company’s ability to pay back shareholders sustainably.
KR’s sales increased 7.2% year-over-year to $31.86 billion in its fiscal third quarter, ended November 6. Its adjusted net earnings attributable to KR came in at $589 million, up 5.7% from the prior-year quarter. And its adjusted net earnings attributable to KR per common share improved 9.9% from the same period last year to $0.78.
Analysts expect KR’s EPS to increase 0.3% year-over-year to $3.48 in its fiscal year 2022. The Street expects its revenue to rise 3.6% from the prior year to $137.33 billion. Furthermore, KR has an impressive surprise earnings history; it has topped consensus EPS estimates in each of the trailing four quarters.
KR’s shares have gained 17.2% in price over the past year and 13.4% over the past six months to close yesterday’s trading session at $45.40.
KR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. KR has an A grade for Growth and a B grade for Value and Quality. In the 39-stock Grocery/Big Box Retailers industry, it is ranked #9. The industry is rated A.
In addition to the POWR Ratings grades I have stated above, one can see KR ratings for Momentum, Stability, and Sentiment here.
Albertsons Companies, Inc. (ACI)
ACI operates as a food and drug store company in the United States. The Boise, Idaho-based company’s offerings include grocery products, health and beauty care products, general merchandise, fuel, and other items. It operates under various brand names.
ACI 4.43 forward Price/Cash Flow ratio is 69.3% lower than the 14.39 industry average. In terms of forward P/E, ACI is currently trading at 10.79x, which is 49.9% lower than the 21.54x industry average.
On January 27, ACI announced that it would enhance its fresh offering with Afresh Technologies’ AI-powered predictive ordering and inventory solutions. Regarding this collaboration, Susan Morris, EVP, and Chief Operations Officer of ACI, said, “By partnering with Afresh, we are now able to improve our processes to better manage our fresh product supply and provide our store teams with a tool to better predict demand and monitor inventory.”
On December 14, ACI launched two new offerings–Meal Planning and Schedule & Save, which are expected to offer loyalty members improved services. The new offerings should enhance ACI’s existing customer experience and help expand its customer base.
For its fiscal third quarter, ended December 4, ACI’s net sales and other revenue increased 8.6% year-over-year to $16.73 billion. Its operating income rose 132% from the prior-year quarter to $599.60 million. Its adjusted net income and adjusted net income per Class A common share improved 18.3% and 19.7%, respectively, from the prior-year period to $457.20 million and $0.79.
The $0.63 consensus EPS estimate for the fourth quarter (ending February 2022) indicates a 5% year-over-year increase. And the $16.66 billion consensus revenue estimate for the same quarter reflects a 5.7% improvement from the prior-year period. In addition, ACI has topped consensus EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 34.5% in price to close yesterday’s trading session at $27.46. It has gained 35.2% over the past six months.
It is no surprise that ACI has an overall A rating, which translates to Strong Buy in our POWR Rating system. ACI has a Growth grade of A, and a Value, Sentiment, and Quality grade of B. It is ranked #1 in the Grocery/Big Box Retailers industry. Click here to see the additional POWR Ratings for ACI (Momentum and Stability).
Ingles Markets, Incorporated (IMKTA)
IMKTA in Black Mountain, N.C. operates as a supermarket chain in the Southwest United States. The company offers food products, non-food products, and private label items, and owns and operates a milk processing and packaging plant.
In terms of trailing-12-month EV/Sales, IMKTA is currently trading at 0.40x, which is 79.1% lower than the 1.93x industry average. Also, its 6.01 trailing-12-month P/E ratio is 73.3% lower than the 22.53 industry average.
On December 27, IMKTA announced a $0.165 quarterly cash dividend per share on its Class A Common Stock and $0.15 per share on its Class B Common Stock, which was payable on January 13. This aggregates to an annualized rate of $0.66 and $0.60 per share, respectively, indicating the company’s ability to generate cash to return to shareholders.
IMKTA’s net sales increased 11.6% year-over-year to $1.34 billion in its fiscal fourth quarter, ended September 25. Income from operations rose 12.6% from the prior-year period to $98.72 million. Its net income and EPS per class A common stock came in at $71.74 million and $3.78, respectively, up 24% and 32.2% from the same period in the prior year.
The Street’s $4.70 billion revenue estimate for the fiscal year 2023 indicates a 3% year-over-year rise.
The stock has gained 62.1% in price over the past year and 29.1% over the past six months to close yesterday’s trading session at $76.48.
This promising outlook is reflected in IMKTA’s POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. IMKTA has an A grade for Value and Quality and a B grade for Growth and Stability. It is ranked #3 in the Grocery/Big Box Retailers industry. To see the additional POWR Ratings for Momentum and Sentiment for IMKTA, click here.
KR shares were trading at $43.49 per share on Friday afternoon, down $1.91 (-4.21%). Year-to-date, KR has declined -3.91%, versus a -8.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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