In this article, I have evaluated prominent grocery stocks, Walmart Inc. (WMT) and BJ's Wholesale Club Holdings, Inc. (BJ), to determine which stock to invest in 2024. After thoroughly evaluating these stocks, I think while WMT could be a solid buy, waiting for a better entry point for BJ could be ideal for the reasons discussed in this article.
Various consumer-oriented features of grocery retail stores, such as fair price, quality, variety of products, and convenience, are driving the attractiveness of grocery retail among consumers, which drives the growth of the global grocery retail market. The global grocery retail market is projected to witness lucrative growth of 6.9% CAGR until 2030.
Furthermore, the global online grocery market is thriving post-pandemic, driven by changing preferences, e-commerce growth, diverse payment options, and contactless assurances, with grocers adopting click-and-collect and partnering for faster delivery. The global online grocery market is anticipated to grow at a CAGR of 26.8% until 2030.
While WMT has gained 5% over the past month as compared to BJ’s 3.7% decline, WMT also gained 2.8% over the past six months compared to BJ’s marginal decline.
Therefore, here are the reasons why I think WMT might perform better in the near term:
Recent Developments
On December 13, 2023, WMT’s one of the divisions, Sam’s Club, announced plans to reopen its Grapevine, Texas, location in late 2024, after closure due to significant storm damage in December 2022. The revitalized club, situated at 1701 W State Hwy 114, will not only restore convenience to its members but also bring new jobs, innovative services, and a renewed commitment to the Grapevine community.
Conversely, on January 18, 2024, BJ announced that its club in Johnson City, New York, would open on Friday, January 26, 2024. The club, located at 315 Reynolds Rd in Johnson City, is BJ’s 48th club in New York.
Recent Financial Results
WMT’s revenue for the fiscal third quarter ended October 31, 2023, increased 5.2% year-over-year to $169.80 billion. Its operating income rose 130.1% over the prior-year quarter to $6.20 billion. Moreover, the company’s net income came in at $453 million and $0.17 per share, compared to a net loss of $1.79 billion and $0.66 per share in the year-ago quarter, respectively.
On the contrary, for the third quarter ended October 28, 2023, BJ’s net sales increased 2.8% year-over-year to $4.82 billion. Also, its adjusted EBITDA increased 1% year-over-year to $274.92 million. However, its adjusted net income declined 3% year-over-year to $131.78 million, and its adjusted EPS declined 1% year-over-year to $0.98.
Past And Expected Financial Performance
WMT’s revenue has increased at a CAGR of 5.2% over the past three years. Its revenue is expected to increase 6% in the year ending January 2024 and 3.9% in the fourth quarter ending January 2024. Its EPS is expected to increase 2.9% in the year ending January 2024 and 8.7% in the next quarter ending April 2024.
Conversely, BJ’s revenue has increased at a CAGR of 9.3% over the past three years. Its revenue is expected to increase by 3.5% in the year ending January 2024 and 9.5% in the fourth quarter ending January 2024. However, its EPS is expected to decline 1.5% in the year ending January 2024.
Valuation
WMT’s forward EV/EBITDA multiple of 13.25 is higher than BJ’s 10.78. WMT’s forward non-GAAP P/E multiple of 25.37x is higher than BJ’s 16.77x.
Profitability
WMT's trailing-12-month gross profit margin of 24.27% is higher than BJ’s 18.33%. In addition, WMT’s trailing-12-month EBIT margin of 4.09% is higher than BJ’s 3.99%.
Thus, WMT is more profitable.
POWR Ratings
WMT has an overall rating of B, translating to a Buy, in our proprietary POWR Ratings system. Conversely, BJ has an overall rating of C, which equates to a Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. WMT has a B grade for Stability, consistent with its stable price performance, while BJ's C grade is consistent with the volatility in performance.
Among the 38 stocks in the A-rated Grocery/Big Box Retailers industry, WMT is ranked #19, while BJ is ranked #30.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Sentiment Momentum, Value, and Quality. Get all WMT ratings here. Click here to view BJ ratings.
The Winner
The growth prospects of the grocery stores industry are anticipated to be bolstered by robust demand and expanding e-commerce platforms. Industry players such as WMT and BJ are well-positioned to benefit from these industry tailwinds.
However, WMT's higher profitability and stable price performance makes it the better buy.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Grocery/Big Box Retailers industry 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 $164.18 per share on Monday afternoon, down $0.09 (-0.05%). Year-to-date, WMT has gained 4.14%, versus a 2.78% 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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