Retail stocks have gained attention as consumer spending remains resilient even in the face of economic uncertainty. Thus, for investors, it could be wise to scoop up the shares of high-quality retail stocks like Target Corporation (TGT), The Kroger Co. (KR), and Albertsons Companies, Inc. (ACI), which are trading at a discount compared to their peers.
Retail sales increased in August due to strong consumer demand and easing inflation. According to the Retail Monitor, total retail sales (excluding automobiles and gasoline) rose by 0.5% sequentially and 2.1% year-over-year. Over the first eight months of the year, total retail sales grew by 2.1% year-over-year, with core sales rising by 2.3%.
Grocery and beverage stores also saw a healthy boost, with a 0.9% increase from July and a 2.5% rise from August last year. Meanwhile, fueled by strong promotional pushes for subscription and membership programs, the U.S. online grocery sales ended August at $9.9 billion, marking a 7% increase from the previous year.
The expansion of online grocery shopping and delivery services has broadened market access and convenience for consumers. The online grocery market, valued at approximately $11.93 billion in 2024, is projected to reach nearly $15.47 billion by 2031, growing at a CAGR of 3.3%. This growth is supported by an increasing consumer focus on health and wellness, with a rising demand for organic and health-conscious products.
Moreover, the retail industry is inherently consumer-driven and highly dynamic, adapting to shifting consumer preferences, technological advancements, and market trends. Today, retailers are not just adjusting to digital transformation but are actively embracing it. This shift enhances operational efficiencies and enables retailers to offer a more personalized shopping experience.
Considering these conducive trends, let’s examine the Grocery/Big Box Retailers industry stocks in detail, beginning with the third choice:
Stock #3: Albertsons Companies, Inc. (ACI)
ACI is engaged in the operation of food and drug stores in the United States. It offers groceries, general merchandise, health and beauty care products, pharmacy, fuel, and other items and services.
On September 4, ACI launched its newest brand, Overjoyed, its first major private label. The label offers categories that include bakery and décor, snack mixes, candy, cookies, and celebration supplies. The addition aligns with the company’s strategy to expand its brand portfolio, boost margins, and differentiate its offerings in a competitive retail landscape.
On June 25, ACI partnered with Gruhub to offer delivery from nearly 1,800 of its stores, including Albertsons, Safeway, and Jewel-Osco, via the Grubhub Marketplace. As the first national grocery chain to collaborate with Grubhub, ACI expands its reach, enhancing customer convenience and competitiveness in the growing grocery delivery market.
ACI’s trailing-12-month ROTC of 8.28% is 19.2% higher than the 6.94% industry average. Similarly, its 45.56% trailing-12-month ROCE is considerably higher than the industry average of 10.67%.
In terms of forward non-GAAP P/E, ACI is trading at 8.06x, 56% lower than the industry average of 18.34x. Likewise, the stock’s forward EV/Sales and Price/Cash Flow multiples of 0.31 and 3.87 are 82.3% and 68.8% lower than the industry averages of 1.74x and 12.40x, respectively.
In the fiscal first quarter that ended on June 15, 2024, ACI’s net sales and other revenue increased marginally year-over-year to $24.27 billion. The company reported a gross margin of $6.74 billion, indicating 1.1% growth from the prior year quarter. ACI’s adjusted net income stood at $391.60 million or $0.66 per common share.
Analysts expect ACI’s revenue and EPS for the current year (ending February 2025) to be $80.53 billion and $2.36, respectively. For the fiscal year 2026, both its revenue and EPS are expected to grow by 1.6% and 0.6% from the prior year to $81.81 billion and $2.38, respectively.
ACI’s stock has gained marginally intraday to close the last trading session at $19.06.
ACI’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
ACI has an A grade for Value and a B for Quality. It is ranked #20 out of 37 stocks in the A-rated Grocery/Big Box Retailers industry. Click here to see the additional ratings for ACI (Growth, Momentum, Stability, and Sentiment).
Stock #2: The Kroger Co. (KR)
KR is a food and drug retailer that owns and operates in supermarkets, multi-department stores, marketplace stores, and price-impact warehouses. It offers grocery, health, and beauty care items, general merchandise (including apparel, home goods, and toys), pet centers, fresh seafood, and organic produce.
On July 31, KR announced the expansion of its ‘Our Brands’ portfolio with the launch of Field & Vine™, a fresh produce line sourced from U.S. farmers across several states. The brand offers seasonal berries like blueberries, blackberries, raspberries, and strawberries, ensuring optimal freshness and reduced transit times. This expansion enhances KR’s private label offerings and is poised to attract health-conscious consumers.
KR’s trailing-12-month ROCE and ROTA of 24% and 5.43% are 125% and 23.5% higher than their respective industry averages of 10.67% and 4.40%. Likewise, its trailing-12-month asset turnover ratio of 2.96x is considerably above the industry average of 0.85x.
In terms of forward EV/Sales, KR is trading at 0.38x, which is 78% lower than the industry average of 1.74x. The stock’s forward Price/Sales ratio of 0.27x is 79.9% below the industry average of 1.35x. Also, its forward Price/Cash Flow multiple of 6.41 compares to the industry average of 12.40x.
For the second quarter of 2024, which ended on August 17, KR’s sales increased marginally year-over-year to $33.91 billion. Its operating profit came in at $815 million versus a loss of $479 million in the prior year. Further, its attributable net earnings amounted to $466 million and $0.64 per share, compared to a net loss of $180 million and $0.25 per share in 2023.
Per the updated financial guidance 2024, KR forecasts identical sales without fuel between 0.75% and 1.75%. The company expects adjusted FIFO operating profit to be in the range of $4.60 billion to $4.80 billion. Also, its adjusted net earnings per share is forecasted to lie between $4.30 and $4.50.
Street expects KR’s revenue for the fiscal third quarter (ending October 2024) to increase marginally year-over-year to $34.23 billion. Its EPS for the same period is expected to register a 3.2% growth from the prior year, settling at $0.98. In addition, it surpassed the EPS estimates in each of the trailing four quarters, which is promising.
Shares of KR have surged 25% over the past nine months to close the last trading session at $55.91.
KR’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It also has a B grade for Value and Quality. Within the same A-rated industry, it is ranked #10. Click here to see KR’s ratings for Growth, Momentum, Stability, and Sentiment.
Stock #1: Target Corporation (TGT)
TGT is a general merchandise retailer selling products through physical stores and digital platforms. The company offers a broad range of everyday essentials and stylish, unique items at competitive prices. Most stores feature diverse merchandise, including apparel, beauty and household essentials, food and beverages, hardlines, and home furnishings.
On June 24, the company partnered with Shopify Inc. (SHOP) to enhance its Target Plus marketplace with new, curated products from popular Shopify merchants like True Classic and Caden Lane. This collaboration is expected to expand Target Plus’s online offerings and bring select Shopify products into Target’s physical stores, providing shoppers with a wider range of affordable, high-quality brands.
The stock’s trailing-12-month ROTA of 8.01% is 82.1% higher than the industry average of 4.40%. Similarly, its 33.97% trailing-12-month ROCE is 218.4% above the industry average of 10.67%. Also, its trailing-12-month asset turnover ratio of 1.97x compares favorably to the industry average of 0.85x.
In terms of forward non-GAAP P/E, TGT is trading at 15.93x, 13.2% lower than the industry average of 18.34x. Likewise, the stock’s forward EV/Sales and Price/Sales multiples of 0.80 and 0.65 are 54.1% and 51.6% lower than their respective industry averages of 1.74 and 1.35.
TGT’s total revenue for the fiscal second quarter (ended August 3, 2024) amounted to $25.45 billion, up 2.7% year-over-year. The company’s net earnings for the quarter amounted to $1.19 billion or $2.57 per share, representing an increase of 42.7% and 42.4% from the same period last year. In addition, its EBITDA increased to $2.39 billion from $1.89 billion recorded in the same period last year.
For the full year, the company expects a 0% to 2% rise in comparable sales and forecasts its adjusted EPS to range between $9.00 and $9.70 (up from the prior range of $8.60 to $9.60).
The consensus revenue estimate of $25.94 billion for the fiscal third quarter (ending October 2024) represents a 2.1% increase year-over-year. The consensus EPS estimate of $2.29 for the same quarter indicates a 9.1% improvement year-over-year. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.
Over the past year, the stock has gained 23.1%, closing the last trading session at $151.36.
TGT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Value, Momentum, Sentiment, and Quality. Out of 37 stocks in the Grocery/Big Box Retailers industry, TGT is ranked #7. Click here to see TGT’s rating for Growth and Stability.
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TGT shares were trading at $152.28 per share on Monday afternoon, up $0.92 (+0.61%). Year-to-date, TGT has gained 10.19%, versus a 19.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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