Grocery stores are expected to attain solid revenue growth despite logistical disruptions and rising food prices due to increasing consumer spending in a recovering economy. So, we think it could be wise to bet on fundamentally sound grocery store stocks The Kroger (KR), Sprouts Farmers (SFM), and Weis Markets (WMK), which are trading near their 52-week highs and still have plenty of upside to deliver. Read on for details.
As the COVID-19 omicron variant spreads rapidly, supply disruptions and labor constraints have again hit grocery stores. Furthermore, record inflation rates have exacerbated conditions for the sector. However, grocery stores should keep growing on increasing demand and consumer spending in a recovering economy.
According to the KPMG Consumer Pulse Survey 2022 Grocery Forecast, U.S. shoppers are projected to spend 14% more on average per month for their groceries. With extended remote lifestyles, consumer spending is predicted to grow for at-home dining, thereby driving revenue growth for grocery stores.
So, we think it could be wise to add quality grocery store stocks The Kroger Co. (KR), Sprouts Farmers Market, Inc. (SFM), and Weis Markets, Inc. (WMK) to one’s portfolio now. They are trading near their 52-week highs and still have plenty of upside to deliver.
The Kroger Co. (KR)
KR in Cincinnati, Ohio, is a retailer in the United States. The company operates combination food and drug stores, multi-department stores, marketplace stores, and price impact warehouses. Its nearly half a million associates serve more than 11 million customers daily.
On Jan. 12, 2022, KR and Nuro formed a collaboration to continue redefining the customer experience with autonomous vehicles by introducing Nuro’s third-generation autonomous delivery vehicle. Yael Cosset, KR’s Senior Vice President and Chief Information Officer, said, “Our expanded collaboration with Nuro supports Kroger’s commitment to provide fresh food, at a great value–all without asking our customers to compromise.”
For the third quarter, ended Nov. 6, 2021, KR’s sales increased 7.2% year-over-year to $31.86 billion. The company’s total current assets were $13.38 billion for the period ended Nov. 6, 2021, versus $12.95 billion for the period ended Nov. 7, 2020. Its total assets were $49.83 billion, compared to $48.47 billion for the same period.
Analysts expect KR’s revenue to be $137.33 billion in its fiscal 2022, representing a 3.6% year-over-year increase. The company’s EPS is expected to rise 6.6% per annum over the next five years. In addition, it has surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 54.7% in price to close yesterday’s trading session at $49.48. It is currently trading 1.3% below its 52-week high of $50.15, which it hit on Jan. 13, 2022.
KR’s POWR Ratings reflect its solid prospects. The company has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
In addition, it has an A grade for Growth and a B grade for Value and Quality. KR is ranked #10 of 39 stocks in the A-Rated Grocery/Big Box Retailers industry. Click here to see the additional POWR Ratings for KR (Momentum, Sentiment, and Stability).
Sprouts Farmers Market, Inc. (SFM)
SFM in Phoenix, Ariz., offers fresh, natural, and organic food products in the United States. It operates through the Healthy Grocery Stores segment. It employs approximately 35,000 team members and operates more than 360 stores in 23 states nationwide.
On Nov. 4, 2021, Jack Sinclair, CEO of SFM, said, “Moving forward, while there is work to be done, we are supported by a robust unit growth story, passionate team members, a loyal customer base, and our fresh differentiation, providing the ingredients for long-term success as a specialty store destination.”
SFM’s net income was $63.87 million, up 6% year-over-year, for its third fiscal quarter, ended Oct. 3, 2021, and its EPS came in at $0.56, up 9.8% year-over-year. Also, its total assets were $2.93 billion for the period ended Oct. 3, 2021, compared to $2.81 billion for the period ended Jan. 3, 2021.
For its fiscal 2022, analysts expect SFM’s revenue to increase 4.7% year-over-year to $6.36 billion. In addition, it has surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 45.9% in price to close yesterday’s trading session at $29.45. The stock is currently trading 5.9% below its 52-week high of $31.31, which it hit on Jan. 11, 2022.
SFM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary rating system.
It has an A grade for Quality. Within the Grocery/Big Box Retailers industry, it is ranked #23. Click here to see the additional POWR Ratings for Growth, Value, Momentum, Sentiment, and Stability for SFM.
Weis Markets, Inc. (WMK)
WMK in Sunbury, Pa., is a retail seller of food in Pennsylvania and surrounding states. The company owns and operates approximately 197 retail food stores across the country.
On Nov. 1, 2021, WMK’s Chairman, President, and CEO Jonathan H. Weis said, “Our hard-working and dedicated associates are the keys to our success. They continue to help us navigate through the challenges of a pandemic-impacted marketplace, which includes a tight labor market, supply chain disruptions, and product cost inflation resulting in some consumer resistance.”
WMK’s net sales for the third quarter, ended Sept. 25, 2021, came in at $1.06 billion, up 6.1% year-over-year. Its comparable-store sales increased 4.6% on an individual year-over-year basis, and it increased 19.4% on a two-year stacked basis.
Over the past year, the stock has gained 35.4% in price to close yesterday’s trading session at $64.50. It is trading 5.4% below its 52-week high of $68.17, which it hit on Jan. 5, 2022.
WMK has an overall A grade, which equates to a Strong Buy in our POWR Ratings system. It has an A grade for Stability and a B grade for Value and Quality. The stock is ranked #8 in the Grocery/Big Box Retailers industry. Click here to check additional ratings for Growth, Momentum, and Sentiment for WMK.
KR shares were trading at $48.84 per share on Friday morning, down $0.64 (-1.29%). Year-to-date, KR has gained 7.91%, versus a -2.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master’s degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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