Despite the current market volatility, the grocery sector benefits from the inelastic demand for its products and services that keep it afloat. Therefore, investors could benefit from grocery stocks Target Corporation (TGT), Koninklijke Ahold Delhaize N.V. (ADRNY), and Village Super Market, Inc. (VLGEA), which are trading at a discount.
As a result of the Federal Reserve’s restrictive monetary policies, significant progress has been made against inflation. The consumer price index (CPI) rose 0.2% in June and was up 3% from a year ago, less than expected by analysts and its lowest level since March 2021.
However, with the Fed recently raising the target range for its benchmark interest rate by 0.25%, bringing it to a new range of 5.25%-5.50%, determined to bring inflation down to its 2% target, the pressure could trigger a recession.
In a challenging macroeconomic environment such as this, it could be wise to invest in grocery stocks as there is inelastic demand for groceries. Moreover, grocery companies can pass on high prices of raw materials to consumers. This makes them resistant to economic cycles and offers a hedge to investors against a potential recession.
Given these factors, investors could take note of the featured grocery stocks. Let’s take a closer look at their fundamentals.
Target Corporation (TGT)
TGT operates as a general merchandise retailer in the United States. The company offers apparel for women, men, boys, girls, toddlers, infants and newborns. It also provides dry grocery, dairy, bakery, meat, and other food service; electronics, toys, entertainment, sporting goods, and luggage; home décor, home improvement, among other products.
In terms of forward non-GAAP P/E, TGT’s 16.51x is 14.21% lower than the 19.24x industry average. Its 0.72x forward EV/Sales is 57.80% lower than the 1.72x industry average. Likewise, its 0.57x forward Price/Sales is 49.78% lower than the 1.13x industry average.
TGT’s total sales for the fiscal quarter ended April 29, 2023, increased 0.5% year-over-year to $24.948 billion. Its total revenue increased 0.6% year-over-year to $25.322 billion. Moreover, its EPS came in at $2.05.
Analysts expect TGT’s EPS estimates for the fiscal quarter ending July 31, 2023, to increase 293.4% year-over-year to $1.53. Over the past one month, TGT has gained 1.9% to close the last trading session at $135.00
It has a B grade for Value in our POWR Ratings system. It is ranked #27 of 38 stocks in the A-rated Grocery/Big Box Retailers industry. We have also given TGT grades for Growth, Momentum, Stability, Sentiment and Quality. Get all TGT ratings here.
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. It operates its supermarkets, convenience stores, and online stores under the Food Lion, Stop & Shop, The GIANT Company and other brands.
In terms of forward non-GAAP P/E, ADRNY’s 12.44x is 35.3% lower than the 19.24x industry average. Its 0.51x forward EV/Sales is 70.1% lower than the 1.72x industry average. Likewise, its 6.49x forward EV/EBITDA is 46.8% lower than the 12.20x industry average.
ADRNY’s net sales for the first quarter increased 9.4% year-over-year to €21.62 billion ($23.81 billion). The company’s net income increased 2.9% year-over-year to €561 million ($617.90 million). Its EPS increased 6.3% year-over-year to €0.57.
ADRNY’s revenue estimate for the fiscal quarter ending June 30, 2023, is expected to increase 12% to $24.74 billion. Over the past nine months, the stock has gained 24.8% to close the last trading session at $34.97
It is no surprise that ADRNY has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It is ranked #2 in the same industry. It has an A grade for Stability and Quality and a B grade for Value. To see additional ratings of ADRNY for Growth, Momentum and Sentiment, click here.
Village Super Market, Inc. (VLGEA)
VLGEA operates a chain of supermarkets in the United States. It offers grocery, meat, produce, dairy, deli, seafood, prepared foods, bakery and frozen foods, health and beauty care, general merchandise, liquor, and pharmacy products through retail and online stores.
In terms of trailing-12-month EV/Sales, VLGEA’s 0.29x is 83.4% lower than the 1.74x industry average. Its 6.24x trailing-12-month EV/EBITDA is 54.2% lower than the 13.64x industry average. Likewise, its 0.15x trailing-12-month Price/Sales is 85.6% lower than the 1.07x industry average.
VLGEA’s sales for the third quarter ended April 29, 2023, increased 5.4% year-over-year to $529.29 million. Its gross profit increased 6.8% year-over-year to $151.22 million. Its adjusted net income increased 92.8% year-over-year to $10.19 million. Its net EPS came in at $0.75, compared to a loss per share of $0.22 in the prior-year quarter.
Over the past three months, VLGEA has gained 6.5% to close the last trading session at $23.32.
VLGEA’s positive outlook are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It is ranked #1 in the Grocery/Big Box Retailers industry. It has an A grade for Growth, Value and Stability and a B grade for Quality. Click here to see the other POWR Ratings of VLGEA for Momentum and Sentiment.
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TGT shares were trading at $135.87 per share on Monday afternoon, up $0.87 (+0.64%). Year-to-date, TGT has declined -7.64%, versus a 20.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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