Owing to rapid digitization and evolving consumer trends, the grocery market is primed for a remarkable expansion in the foreseeable future. Moreover, the inelastic demand for groceries should help the industry navigate any economic challenges in the near term.
Given this backdrop, quality grocery stocks George Weston Limited (WNGRF), Walmart Inc. (WMT), and Casey's General Stores, Inc. (CASY) could be solid portfolio additions now.
Despite the inflationary pressures pushing prices higher, the demand for grocery products has remained unaffected. It has been observed that grocers are promoting value among their food service offerings by finding more ways to showcase quality and highlight the convenience of their options to consumers.
Grocers have increased their retail media spending as they seek more engaging ad formats to attract customers, which will continue to expand into connected TV (CTV) and in-store media formats like radio or digital screens placed throughout stores. It is anticipated that Retail media ad spending will amount to $60 billion in 2024, growing 28.6%.
Omnichannel mass merchandisers have driven the supermarket business to digitalization, which has led to revolutionary trends in the global market. The incorporation of new delivery models has propelled the industry’s growth substantially.
Integration of advanced technologies like online platforms, AI-driven personalized shopping experiences, and smart supply chain management, coupled with the implementation of data analytics and automation, has driven the grocery industry. Additionally, retailers are keeping up with the ever-changing consumer trends by introducing eco-friendly packaging and offering a diverse range of healthier and specialized products.
The global food and grocery retail market is projected to reach $14.78 trillion by 2030, growing at a 3.2% CAGR.
Given the industry tailwinds, it's time to examine the fundamentals of the three stocks to buy in the A-rated Grocery/Big Box Retailers industry, starting with the third in line.
Stock #3: George Weston Limited (WNGRF)
Headquartered in Toronto, Canada, WNGRF provides food and drug retailing and financial services. It operates through two segments: Loblaw Companies Limited (Loblaw); and Choice Properties Real Estate Investment Trust (Choice Properties).
In the third quarter that ended October 7, 2023, WNGRF purchased and canceled 2.40 million shares under its NCIB for an aggregate consideration of CAD364 million ($269.58 million).
It pays an annual dividend of $2.09 per share, which translates to a dividend yield of 1.67% on the current share price. Its four-year average yield is 1.80%. WNGRF’s dividend payments have grown at CAGRs of 9.3% and 6.9% over the past three and five years, respectively.
WNGRF’s trailing-12-month cash from operations of $4.08 billion is 392.7% higher than the industry average of $827.15 million. Its trailing-12-month ROCE and ROTC of 22.15% and 8.29% are 93.6% and 27.3% higher than the industry averages of 11.44% and 6.52%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 4.7% and 4.3%, respectively, while its EBITDA grew at 12.2% and 11.1% CAGRs over the same periods.
For the fiscal third quarter that ended October 7, 2023, WNGRF’s revenue increased 5.1% year-over-year to CAD18.41 billion ($13.63 billion), while operating income stood at CAD1.23 billion ($911.69 million). Moreover, its adjusted EBITDA increased 3.5% from the year-ago quarter to CAD2.02 billion ($1.50 billion).
For the same quarter, adjusted net earnings available to common shareholders of the company from continuing operations and adjusted net earnings per common share from continuing operations stood at CAD466 million ($345.12 million) and CAD3.36, up 2.9% and 7.7% from the prior-year quarter, respectively.
Street expects WNGRF’s revenue for the fiscal first quarter ending March 2024 to increase 3.2% year-over-year to $10.12 billion. The company surpassed consensus revenue estimates in three of the trailing four quarters, which is impressive.
The stock has gained 9.9% over the past six months to close the last trading session at $124.99. Over the past three months, it has gained 4.7%.
WNGRF’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Stability and Quality. Within the A-rated 38-stock Grocery/Big Box Retailers industry, it is ranked #18.
To see additional POWR Ratings for Growth, Value, Momentum, and Sentiment for WNGRF, click here.
Stock #2: Walmart Inc. (WMT)
WMT operates retail, wholesale, and other units worldwide. The company operates through three segments: Walmart U.S.; Walmart International; and Sam's Club.
On January 30, WMT conducted a split of its outstanding shares of common stock at a ratio of 3:1. The stock split is part of WMT’s ongoing review of optimal trading and spread levels and its desire for its associates to feel that purchasing shares is easily within reach.
More than 400,000 associates participated in WMT’s Associate Stock Purchase Plan, which allowed eligible associates to buy stock conveniently through payroll deductions and provide a 15% company match on the first $1,800 each year.
On December 13, 2023, Sam’s Club, a division of WMT, announced plans to reopen its Grapevine, Texas, location in late 2024 after closure due to significant storm damage in December 2022.
The revitalized club will not only restore convenience to its members but also bring new jobs, innovative services, and a renewed commitment to the Grapevine community.
It pays an annual dividend of $2.28 per share, which translates to a dividend yield of 1.34% on the current share price. Its four-year average yield is 1.57%. WMT’s dividend payments have grown at CAGRs of 1.8% and 1.9% over the past three and five years, respectively.
WMT’s trailing-12-month cash from operations of $32.16 billion is 392.7% higher than the industry average of $827.15 million, while its trailing-12-month asset turnover ratio of 2.52x is 202.5% higher than the industry average of 0.83x.
Over the past three and five years, its revenue grew at CAGRs of 5.2% and 4.5%, respectively, while its total assets grew at 1.1% and 2.7% CAGRs over the same periods.
For the fiscal third quarter that ended October 31, 2023, WMT’s total revenues and adjusted operating income increased 5.2% and 3% year-over-year to $160.80 billion and $6.20 billion, respectively.
For the same quarter, consolidated net income attributable to WMT came at $453 million, compared to a consolidated net loss attributable to WMT of $1.80 billion in the year-ago quarter. Also, adjusted EPS increased 2% from the prior-year quarter to $1.53.
Street expects WMT’s revenue and EPS for the fiscal first quarter ending April 2024 to increase 3.5% and 8.6% year-over-year to $156.25 billion and $1.60, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 15.9% over the past year to close the last trading session at $169.14. Over the past nine months, it has gained 10.5%.
WMT’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
WMT has a B grade for Momentum, Stability, and Sentiment. It is ranked #13 within the same industry.
Click here for the additional POWR Ratings for WMT (Growth, Value, and Quality).
Stock #1: Casey's General Stores, Inc. (CASY)
CASY operates convenience stores under the names Casey's and Casey's General Store. Its stores offer pizza, donuts, breakfast items, sandwiches, and tobacco and nicotine products.
During the second quarter that ended October 31, 2023, CASY repurchased approximately $30 million of shares. The company has approximately $340 million remaining under its existing share repurchase authorization.
Additionally, at its December meeting, CASY’s Board of Directors approved a quarterly dividend of $0.43 per share, payable to shareholders on February 15. It pays an annual dividend of $1.72 per share, which translates to a dividend yield of 0.60% on the current share price.
Its four-year average yield is 0.69%. CASY’s dividend payments have grown at CAGRs of 8.7% and 8.1% over the past three and five years, respectively.
CASY’s trailing-12-month cash from operations of $877.63 million is 6.1% higher than the industry average of $827.15 million, while its trailing-12-month asset turnover ratio of 2.43x is 191.5% higher than the industry average of 0.83x.
Over the past three and five years, its EBITDA grew at CAGRs of 10.4% and 14%, respectively, while its total assets grew at 12.9% and 11.9% CAGRs over the same periods.
For the fiscal second quarter that ended October 31, 2023, CASY’s total revenue and income before income taxes increased 2.2% and 15.5% year-over-year to $4.06 billion and $207.95 million, respectively. Moreover, its adjusted EBITDA stood at $307.07 million, up 11.1% from the year-ago quarter.
For the same quarter, net income and net income per common share increased 15.4% and 15.5% from the prior-year quarter to $158.78 million and $4.24, respectively.
Street expects CASY’s revenue and EPS for the fiscal fourth quarter ending April 2024 to increase 7% and 34.1% year-over-year to $3.56 billion and $2, respectively. The company surpassed consensus EPS estimates in three of the trailing four quarters.
The stock has gained 25.8% over the past year to close the last trading session at $280.66. Over the past nine months, it has gained 18.9%.
CASY’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
CASY has a B grade for Sentiment and Quality. Within the same industry, it is ranked #6.
Beyond what we’ve stated above, we have also rated the stock for Growth, Value, Momentum, and Stability. Get all ratings of CASY 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 were trading at $167.79 per share on Wednesday afternoon, down $1.35 (-0.80%). Year-to-date, WMT has gained 6.43%, versus a 4.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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