The retail industry is undergoing a transformational phase as technological advances like Artificial Intelligence (AI), the Internet of Things (IoT), and Radio-Frequency Identification (RFID) are creating growth opportunities for retailers. Also, with easing inflation and the job market’s resilience, consumers are slowly regaining their confidence.
Given the industry’s bright prospects, fundamentally sound retail stocks Walmart Inc. (WMT) and Casey's General Stores, Inc. (CASY) could be solid additions to your portfolio for substantial gains.
According to Fitch Ratings, U.S. consumer spending remained notably resilient in 2023, backed by solid job and income gains, strong household finances, easing inflation, and improving consumer sentiment. Last year, household nominal disposable income rose at 6.9% year-over-year, while real household disposable income was at a robust 4.2%.
Fitch further revised its annual real consumer spending forecast for 2024 to 1.3% from 0.6%, underscoring the ongoing willingness and ability of consumers to spend more, which is likely to support the retail industry.
This year, significant shifts are expected in the retail landscape, particularly in the realms of retail media evolution, ongoing consumer price sensitivity, and the influence of grocers’ food service offerings on meal expenditures. Retailers are increasingly leveraging technology to streamline operations and enhance customer experience.
For instance, retailers use data analytics for personalized marketing and inventory management and adopt technologies like RFID and IoT to improve supply chain efficiency. The global smart retail market is poised to grow to $299.76 billion by 2031, growing at a CAGR of 29% in the forecast period (2024-2031).
The retail market is expected to grow from $28.85 trillion in 2023 to $313.10 trillion in 2024 at a CAGR of 8.5%. The market size is further expected to total $427.59 trillion by 2028, growing at a CAGR of 8.1% during the forecast period (2024-2028).
The growing shift toward online shopping continues to impact the retail industry significantly. According to recent industry calculations, the U.S. will rank first among 20 countries worldwide in retail e-commerce development from 2024 to 2028, growing at a CAGR of 11.8%. By 2026, the American online retail market value is expected to surpass the trillion-dollar mark.
Given the industry tailwinds, let’s delve into the fundamentals of the two best Grocery/Big Box Retailers stocks, beginning with the second choice.
Stock #2: Casey's General Stores, Inc. (CASY)
CASY operates convenience stores under the Casey’s and Casey’s General Store names. Its stores offer pizza, donuts, breakfast items, and sandwiches; and tobacco and nicotine products. They also provide soft drinks, sports drinks, juices, coffee, tea, and dairy products; beer, wine, and spirits; snacks, candy, packaged bakery, and other food items.
On March 4, 2024, CASY launched all-new, delicious sandwiches prepared fresh in its stores every day for customers on the go. This includes three sandwiches – Crispy Chicken, Spicy Crispy Chicken, and Quarter Pound Angus Beef Burger, alongside an upgrade, the Breaded Pork Sandwich. The addition of a new sandwich menu will boost CASY’s revenue streams and growth.
In terms of forward non-GAAP PEG, CASY is trading at 1.79x, 19.1% lower than the industry average of 2.22x. Likewise, the stock’s forward EV/Sales multiple of 0.84 is 50.4% lower than the industry average of 1.70. Also, its forward Price/Sales of 0.74x is 39.6% lower than the industry average of 1.23.
For nine months that ended on January 31, 2024, CASY reported total revenue of $11.26 billion. The company’s income before income tax increased 5.6% year-over-year to $543.97 million. Its net income came in at $414.95 million and $11.09 per share, up 6.2% and 6.4% from the prior year’s period, respectively.
In addition, the company’s adjusted EBITDA increased 6.2% year-over-year to $841.26 million. Its total assets came in at $6.20 billion as of January 31, 2024, versus $5.94 billion as of April 30, 2023.
Analysts expect CASY’s revenue and EPS for the fourth quarter (ending April 2024) to increase 3.9% and 20.3% year-over-year to $3.46 billion and $1.79, respectively. Furthermore, the company surpassed the consensus EPS estimates in three of the trailing four quarters.
CASY’s stock has gained 7.3% over the past six months and 40.6% over the past year to close the last trading session at $295.91.
CASY’s solid outlook is reflected in its POWR Ratings. 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, each weighted to an optimal degree.
The stock has a B grade for Growth, Sentiment, and Quality. Within the A-rated Grocery/Big Box Retailers industry, CASY is ranked #8 among 37 stocks.
Click here to access additional ratings of CASY (Value, Stability, and Momentum).
Stock #1: Walmart Inc. (WMT)
WMT operates retail, wholesale, and other units globally. Its segments include Walmart U.S.; Walmart International; and Sam's Club. The company runs supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, and discount stores under the Walmart and Walmart Neighborhood Market brands.
On February 20, 2024, WMT’s board of directors approved an annual cash dividend for the fiscal year 2025 of $0.83 per share on a post-stock split basis or $2.49 per share on a pre-split basis. This represents a 9% increase from the $2.28 per share paid for the last fiscal year.
The fiscal year 2025 annual dividend of $0.83 per share will be paid in four quarterly installments of $0.2075 per share. WMT’s annual dividend translates to a yield of 1.35% at the current share price. Its four-year average dividend yield is 1.56%. Moreover, Walmart has raised its dividends for 50 consecutive years.
On the same day, WMT and VIZIO Holding Corp. (VZIO) entered into an agreement under which WMT would acquire VIZIO for $11.50 per share in cash, equating to a fully diluted equity value of approximately $2.30 billion.
The acquisition of VIZIO and its SmartCast Operating System (OS) will allow WMT to connect with and serve its customers in new ways, such as through innovative television and in-home entertainment and media experiences. This will create new opportunities to help advertisers connect with customers and will further accelerate WMT’s media business in the U.S.
On November 21, 2023, WMT and Bamboo Rose, a next-gen tech innovator, announced a joint project to develop and implement a state-of-the-art enterprise sourcing platform (ESP), revolutionizing the way WMT does business with its suppliers around the world.
In terms of forward EV/Sales, WMT is trading at 0.82x, 51.5% lower than the industry average of 1.70x. Similarly, the stock’s forward Price/Sales multiple of 0.74 is 40.1% lower than the industry average of 1.23.
For the fourth quarter that ended January 31, 2024, WMT’s total revenues increased 5.7% year-over-year to $173.39 billion. Its adjusted operating income grew 13.2% from the year-ago value to $7.25 billion. Its consolidated net income attributable to WMT came in at $5.49 billion for the fourth quarter.
Further, the company’s adjusted EPS increased 5.3% year-over-year to $1.80. Its free cash flow came in at $15.12 billion as of January 31, 2024, compared to free cash flow of $11.98 billion as of January 31, 2023.
As per the company guidance, WMT expects a 4% to 5% increase in its consolidated net sales (cc) during the first quarter of fiscal 2025, and it expects its consolidated operating income (cc) to increase 3.0% to 4.5% over the same period.
For the fiscal year 2025, the company’s consolidated net sales (cc) are expected to increase 3%-4%, and consolidated operating income (cc) is anticipated to grow between 4% and 6%.
Street expects WMT’s EPS for the first quarter (ending April 2024) to increase 6.7% year-over-year to $0.52, and its revenue is expected to grow 4.6% year-over-year to $158.01 billion. Furthermore, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
Shares of WMT have surged 11.7% over the past six months and 33.8% over the past year to close the last trading session at $61.07.
WMT’s POWR Ratings reflect its promising prospects. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
WMT has an A grade for Growth and a B for Quality, Stability, Sentiment, and Momentum. It is ranked #3 among 37 stocks within the same industry.
In addition to the POWR Ratings I’ve just highlighted, you can see WMT’s 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.
WMT shares rose $0.24 (+0.39%) in premarket trading Thursday. Year-to-date, WMT has gained 16.61%, versus a 8.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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