The grocery retail industry is expected to remain resilient due to inelastic demand and attractive discounts offered by online grocery stores. Therefore, I think fundamentally sound grocery stocks Costco Wholesale Corporation (COST), PriceSmart, Inc. (PSMT), and Jerónimo Martins, SGPS, S.A. (JRONY) could be ideal buys for unleashing profits.
The global grocery retail market is projected to reach $14.77 trillion by 2030, growing at a CAGR of 6.9%. Various consumer-oriented features of grocery retail stores, such as fair price, quality, variety of products, and convenience, help them stay competitive.
Moreover, the supermarket industry is projected to reach $1.16 trillion by 2029, with a CAGR of 3.3%. This growth can be ascribed to a variety of factors, including rising population, rising disposable income, and shifting customer tastes toward convenience and online shopping. Also, technological improvements and the use of e-commerce platforms are accelerating the expansion of supermarkets.
Grocery shopping via online channels is becoming more popular as a result of technological advancements, urbanization, and a shift in consumer purchasing habits. The market is being driven by rising disposable income and attractive discounts offered by online grocery stores. Also, low service fees and easy availability of time slots are aiding market expansion.
The global online grocery market is expected to reach $2.83 trillion by 2032, growing at a CAGR of 22.7%.
With these favorable trends in mind, let’s delve into the fundamentals of the three best Grocery/Big Box Retailers stocks, beginning with the third choice.
Stock #3: Costco Wholesale Corporation (COST)
COST engages in the operation of membership warehouses in the United States, Puerto Rico, Canada, Mexico, Japan, the United Kingdom, Korea, Australia, Taiwan, China, Spain, France, Iceland, New Zealand, and Sweden. The company offers branded and private-label products in a range of merchandise categories.
COST’s trailing-12-month ROCE of 27.37% is 140.9% higher than the industry average of 11.36%. Its trailing-12-month asset turnover ratio of 3.52x is 322.1% higher than the 0.83x industry average.
For the fiscal second quarter, which ended November 26, 2023, COST’s total revenue came in at $57.80 billion, up 6.2% year-over-year. The company’s net income increased 16.5% year-over-year to $1.59 million. Also, its net income per common share came in at $3.58, representing an increase of 16.6% year-over-year.
Street expects COST’s revenue to increase 7% year-over-year to $59.16 billion for the fiscal second quarter ending February 2024. Its EPS is expected to grow 10% year-over-year to $3.63 for the same quarter. It surpassed EPS estimates in three of four trailing quarters.
Shares of COST has gained 47.4% over the past year to close the last trading session at $723.02.
COST’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
COST has a B grade for Sentiment, Momentum, Stability, and Quality. It is ranked #25 in the A-rated Grocery/Big Box Retailers industry.
In addition to the POWR Ratings highlighted above, one can access COST’s ratings for Growth and Value, here.
Stock #2: PriceSmart, Inc. (PSMT)
PSMT owns and operates U.S.-style membership shopping warehouse clubs in the United States, Central America, the Caribbean, and Colombia. The company provides basic and private label consumer products under the Member's Selection brand, including groceries, cleaning supplies, health and beauty aids, meat, produce, deli, seafood, and poultry.
PSMT’s trailing-12-month ROTC of 9.74% is 49% higher than the industry average of 6.54%. Its trailing-12-month asset turnover ratio of 2.31x is 177.3% higher than the industry average of 0.83x.
In the fiscal first quarter that ended November 30, 2023, PSMT’s total revenues stood at $1.17 billion, up 11.4% year-over-year. The company’s operating income rose 4.8% year-over-year to $58.21 million, and net income increased 15.6% year-over-year to $38.05 million. Moreover, its net income per share increased 18.1% year-over-year to $1.24.
Analysts expect PSMT’s revenue to increase 11.9% year-over-year to $1.28 billion for the fiscal second quarter ending February 2024. Its EPS is expected to grow 32.4% year-over-year to $1.35 for the same quarter. It surpassed revenue estimates in three of four trailing quarters.
Over the past three months, the stock has gained 20.9% to close the last trading session at $81.14.
PSMT’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.
The stock has a B grade for Stability, Momentum, and Value. It is ranked #10 in the same industry.
Click here to access the additional PSMT ratings (Growth, Sentiment, and Quality).
Stock #1: Jerónimo Martins, SGPS, S.A. (JRONY)
Headquartered in Lisbon, Portugal, JRONY operates in the food distribution and specialized retail sectors in Portugal, Poland, and Colombia. The company operates through Portugal Retail; Portugal Cash & Carry; Poland Retail; Colombia Retail; and Others, Eliminations and Adjustments segments.
JRONY’s trailing-12-month ROCE of 31.13% is 174% higher than the industry average of 11.36%. Its trailing-12-month asset turnover ratio of 2.52x is 203.1% higher than the industry average of 0.83x.
In the third quarter, which ended September 30, 2023, JRONY’s sales and services rendered grew 22% year-over-year to €7.94 billion ($8.65 billion). The company’s net profit rose 24% from the prior-year quarter to €207 million ($225.56 million). Moreover, its EPS increased 28.2% from the previous-year quarter to €0.32.
As of September 30, 2023, its total assets amounted to €12.75 billion ($13.89 billion), compared to its total assets of €11.85 billion ($12.91 billion) as of December 31, 2022.
JRONY’s revenue and EPS are expected to grow 16.5% and 4.8% year-over-year to $8.85 billion and $0.72, respectively, for the fourth quarter ended December 2023. The company surpassed the revenue and EPS estimates in each of the trailing four quarters, which is impressive.
JRONY’s shares have gained 14.6% over the past year to close the last trading session at $47.32.
JRONY’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It’s no surprise that JRONY has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
It has an A grade for Stability and a B in Growth and Quality. It is ranked #7 out of 38 stocks in the same industry.
Beyond what is stated above, we’ve also rated JRONY for Value, Sentiment, and Momentum. Get all JRONY 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.
COST shares were trading at $733.50 per share on Thursday afternoon, up $10.48 (+1.45%). Year-to-date, COST has gained 11.29%, versus a 6.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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