With the possibility of additional rate hikes, the economy could face the peril of recession. Regardless of uncertain macro conditions, the big-box retail industry has been performing well, given its inelastic nature. Thus, investors could consider buying fundamentally strong stocks Walmart Inc. (WMT), Koninklijke Ahold Delhaize N.V. (ADRNY), And Ingles Markets, Incorporated (IMKTA) for solid gains.
Before delving deeper into the fundamentals of these stocks, let’s discuss various factors that make the Grocery/Big-box Retailers one of the best-rated industries in our POWR Ratings system.
The Federal Reserve has raised its benchmark interest rate by 0.25% this month to restore price stability, leading to a federal funds rate range of 4.75% to 5%. As per new economic projections, most of the Fed’s members forecast an additional quarter-point rise this year, bringing the rates to 5.1%.
Furthermore, the central bank's quarterly forecasts imply that interest rates would remain steady until 2024, at approximately 4.3%. A sequence of successive rate hikes might push the economy into a recession. Amid the inflationary and recessionary environment, the big-box retail industry has been holding up well due to the inelastic demand for its products.
Furthermore, the proliferation of digitalization and social media has opened a plethora of prospects for the big-box retail industry. Retailers are gearing up to augment their digital channels, which offers a significant opportunity to reach a wide range of customers. U.S. e-commerce sales are estimated to have reached $1.03 trillion in 2022, marking the first time e-commerce revenue topped the trillion-dollar level.
Investors’ interest in grocery/big-box retailer stocks is evident from the NASDAQ NQ US Food Retailers & Wholesalers Large Mid Cap Index’s 15.7% gains over the past six months. The Grocery/Big Box Retailers is ranked #3 out of 124 industries in our proprietary rating system.
Let us now take a closer look at the featured stocks.
Walmart Inc. (WMT)
WMT offers an extensive range of merchandise and amenities through its retail and e-commerce channels. The company’s core strategy centers around its Everyday Low-Price model, prioritizing affordability and accessibility. It operates across three segments, Walmart U.S.; Walmart International; and Sam's Club.
On March 2, WMT announced its plans to inaugurate 28 new Walmart Health centers by 2024, aiming to expand its footprint in Missouri and Arizona while fortifying its presence in Texas. The proposed move has the potential to significantly enhance the company’s operational capabilities, resulting in over 75 such centers by 2024.
On February 28, WMT joined hands with Citigroup (C) to provide the Bridge built by the Citi platform to WMT’s 10,000 Small and Medium-sized Businesses (SMBs) in the U.S. supplier network. This partnership aims to support WMT’s suppliers to gain access to the capital needed to grow, thus driving the company’s expansion.
Also, on February 21, the company announced an annual dividend of $2.28 per share for the fiscal year 2024, a 2% increase over the prior fiscal year’s payout of $2.24 per share. WMT’s annual dividend of $2.28 yields 1.59% on the current price level. It has raised its dividends for 49 consecutive years.
The stock’s trailing-12-month asset turnover ratio of 2.50x is 194.1% higher than the 0.85x industry average. Likewise, its trailing-12-month ROCE, ROTC, and ROTA of 14.60%, 10.47%, and 4.80% compare with the industry averages of 10.48%, 6.32%, and 3.95%, respectively.
WMT’s total revenues increased 7.3% year-over-year to $164.05 billion during the fourth quarter that ended January 31, 2023. Its income before income taxes grew 86.2% from the previous year’s period to $8.90 billion. Also, the company’s consolidated net income and adjusted EPS rose 59.9% and 11.8% year-over-year to $5.81 billion and $1.71, respectively.
The consensus revenue estimate of $649.91 billion for the fiscal year ending January 2025 reflects a 3.5% year-over-year improvement. Likewise, the consensus EPS estimate of $6.79 for the next year indicates an 11.2% rise year-over-year. Moreover, the company topped its consensus revenue estimates in all four trailing quarters, which is impressive.
The stock has gained 17.4% over the past nine months to close the last trading session at $144.23.
WMT’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
WMT has an A grade for Stability and a B for Sentiment, Growth, and Quality. It ranks #3 in the A-rated 37-stock Grocery/Big Box Retailers industry.
In addition to the POWR Ratings I’ve just highlighted, you can see WMT’s ratings for Value and Momentum here.
Koninklijke Ahold Delhaize N.V. (ADRNY)
ADRNY is a retail food and e-commerce company headquartered in Zaandam, Netherlands. Its stores offer a diverse range of products, including produce, meat, dairy, and more. The company runs supermarkets, convenience stores, and online stores under various brands, such as Food Lion, Stop & Shop, Hannaford, and Delhaize.
On March 7, Delhaize, ADRNY’s Belgian brand, announced its plans to convert its 128 integrated supermarkets in Belgium into autonomously run Delhaize outlets. This would allow the company to be more responsive to local conditions leveraging its strong local presence and flexible business hours to swiftly adapt to the dynamic needs of consumers and the market at large.
Furthermore, on December 14, 2022, ADRNY’s Albert Heijn brand and Jan Linders Supermarkets, a family business, announced a partnership that would entail Jan Linders operating as an Albert Heijn franchisee. In addition, Albert Heijn would procure Jan Linders’ distribution center in Nieuw Bergen.
Under this agreement, Jan Linders’ 63 stores would be incorporated into Albert Heijn’s new franchise organization, further strengthening the company’s network of stores in the southern Netherlands. These initiatives would consolidate ADRNY’s market position and enhance its potential for expansion.
ADRNY’s trailing-12-month cash from operations of $6.54 billion is significantly higher than the $352.50 million industry average. The stock’s trailing-12-month ROCE, ROTC, and ROTA of 17.48%, 7.65%, and 5.24% are higher than the industry averages of 10.48%, 6.32%, and 3.95%, respectively.
For the fourth quarter that ended January 1, ADRNY’s net sales increased 15.9% year-over-year to €23.36 billion ($25.32 billion), while its operating income rose 30.5% from the year-ago value to €1.17 billion ($1.27 billion). Furthermore, the company’s net income and EPS grew 27.6% and 32.4% year-over-year to €809 million ($876.96 million) and €0.82, respectively.
Analysts expect ADRNY’s EPS to marginally increase year-over-year to $2.74 for the fiscal year ending December 2023. The company’s revenue for the ongoing year is expected to grow 4.5% year-over-year to $97.14 billion. Furthermore, the company surpassed its consensus revenue estimates in three of the four trailing quarters.
Shares of ADRNY have gained 30.8% over the past six months to close the last trading session at $33.46.
ADRNY’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
ADRNY has an A grade for Quality and Stability and a B for Growth and Value. It has topped the 37-stock Grocery/Big Box Retailers industry.
In addition to the POWR Ratings I’ve just highlighted, you can see ADRNY ratings for Sentiment and Momentum here.
Ingles Markets, Incorporated (IMKTA)
IMKTA operates a supermarket chain. Its offerings include food and non-food products like grocery, meat, dairy, produce, fuel centers, and pharmacies. It also owns a milk processing and packaging plant and provides home meal replacement items, delicatessens, bakeries, floral departments, greeting cards, and organic products.
IMKTA’s trailing-12-month net income margin of 4.77% is 37.7% higher than the 3.47% industry average. Furthermore, its trailing-12-month ROCE, ROTC, and ROTA of 23.26%, 13.17%, and 11.77% are 121.86%, 108.4%, and 197.8% higher than the 10.48%, 6.32% and 3.95% industry averages, respectively.
For the fiscal 2023 first quarter that ended December 24, 2022, IMKTA’s net sales increased 7.3% year-over-year to $1.49 billion, and its gross profit grew 5.9% from the prior year’s period to $371.16 million. In addition, the company’s net income rose 4.8% year-over-year to $69.37 million.
As of December 24, 2022, IMKTA’s total assets stood at $2.35 billion, compared to $2.30 billion as of September 24, 2022.
Analysts expect IMKTA’s revenue to grow 3% year-over-year to $4.84 billion for the fiscal year 2024. Moreover, the company’s EPS is expected to increase by 14.5% annually for the next five years. The stock has gained 10.3% over the past six months to close the last trading session at $87.84.
IMKTA’s POWR Ratings reflect its promising prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Value and a B for Quality and Stability. Within the same industry, it ranks #2 of 37 stocks.
To see additional POWR Ratings for Sentiment, Growth, and Momentum for IMKTA, click here.
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WMT shares were trading at $145.21 per share on Thursday afternoon, up $0.98 (+0.68%). Year-to-date, WMT has gained 2.83%, versus a 5.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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