While policymakers continue to debate over the next moves on concerns of strong economic data and the recent bank crisis, the stock market is expected to remain under pressure. Due to the inelastic demand for its goods and strong consumer spending, the big-box retail sector is expected to stay afloat. Therefore, it could be wise to load up on the shares of quality big box retailers Walmart (WMT), Albertsons Companies (ACI), and BJ’s Wholesale (BJ) for steady returns. Read more….
Recent upbeat economic data showed that a strong labor market and tenacious high inflation amid the failures of two major regional banks have put the Fed in a dilemma concerning its fight against stubborn inflation. Due to the inelastic demand for their products, the big box retailers are well-positioned to witness steady growth despite the prevailing macroeconomic challenges.
Over the past year, the Fed has made relentless efforts to combat inflation, but it remains well elevated above the 2% target. The Consumer Price Index (CPI) increased 0.4% in February and 6% year-over-year. Given the resilient strength of the jobs market combined with high inflation, the Fed was slated to deliver a rate hike of 50 basis points until the collapse of the Silicon Valley Bank and other key events that followed.
Given the recent bank failures, analysts expect that the central bank will likely opt for a smaller or no rate hike at the monetary policy meeting this week to restore stability to the financial markets. In addition, Personal Consumption Expenditures (PCE) rose 5.4% year-over-year in January, showing robust consumer spending.
Although given the swings in macroeconomic conditions and their effect on consumer behavior seems to be challenging for big-box retailers, they tend to enjoy an inelastic demand as consumers usually do not pull back spending on essentials. Moreover, technological advancements should keep the retail sector buoyed this year as e-commerce continues to gain prominence since the pandemic.
Given this backdrop, it could be wise to scoop up the shares of fundamentally sound big box retailer stocks WMT, ACI, and BJ that are poised to capitalize on the industry’s tailwinds.
Walmart Inc. (WMT)
WMT offers an assortment of merchandise and services at everyday low prices in retail stores and through e-commerce websites. The company operates through three segments: Walmart U.S.; Walmart International; and Sam’s Club.
On February 28, WMT and Citi collaborated to make the Bridge platform available to the 10,000 small and medium-sized companies (SMBs) that make up WMT’s U.S.-based supplier network. This collaboration should contribute to enhancing Walmart’s U.S. supplier base’s access to capital through a network of over 70 lenders, including 20+ diverse financial institutions.
On February 21, the company approved an annual cash dividend of $2.28 per share, representing an increase of 2% year-over-year. This marked the company’s 50th consecutive year of dividend increase. WMT’s four-year average dividend yield is 1.67%, and its current dividend of $2.28 translates to a 1.62% yield on prevailing prices. Its dividend payouts have grown at a 1.8% CAGR over the past three years and at a 1.9% CAGR over the past five years.
WMT’s total revenue increased 7.3% year-over-year to $164.05 billion in the fourth quarter that ended January 31, 2023. Its adjusted operating income grew 6.3% from the year-ago value to $6.37 billion, while its adjusted EPS came in at $1.71, representing an increase of 11.8% year-over-year. In addition, the company’s attributable net income stood at $6.28 billion, up 76.2% year-over-year.
Street expects WMT’s revenue to increase 5% year-over-year to $147.36 billion for the fiscal first quarter (ending April 30, 2023). Its EPS is expected to increase by 3.7% per annum in the next five years. The company surpassed the revenue estimates in each of the four trailing quarters, which is promising.
The stock has gained 19.1% over the past nine months to close the last trading session at $140.90.
WMT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Among the 37 stocks in the A-rated Grocery/Big Box Retailers industry, it is ranked #3. WMT is also rated an A in Stability and B in Growth, Sentiment, and Quality. To see additional POWR Ratings for Value and Momentum for WMT, click here.
Albertsons Companies, Inc. (ACI)
ACI owns and operates grocery and medicine businesses. The firm sells groceries, general retail, health and beauty care products, pharmacy, fuel, and a variety of other goods and services. It also makes and processes food for retail sale.
Recently, ACI redesigned its Open Nature brand as the company strives to become the brand of choice for those health-conscious shoppers seeking a balanced lifestyle. Open Nature has launched 12 new plant-based products within its growing portfolio, including non-dairy frozen desserts, dairy-free yogurt, and non-dairy cheese alternatives to support a balanced, plant-forward diet at an accessible price.
Such new offerings should help drive consumer demand and boost the overall revenues of the company.
Brandon Brown, SVP of Own Brands at ACI, said, “The expansion of our Open Nature offerings demonstrates an ongoing commitment to support the health and wellbeing of our neighbors and communities.”
In February, ACI announced the launch of Sincerely Health, a digital health and wellness platform that is now accessible on 16 of its banners’ grocery app and websites, including Albertsons, Safeway, Vons, Shaw’s, Jewel-Osco, Acme, Tom Thumb and more. This affiliation should give ACI a chance to boost business growth and operations.
ACI’s net sales and other revenue increased 8.5% year-over-year to $18.15 billion for the third quarter that ended on December 3, 2022. Its gross margin grew 6% from the year-ago value to $5.12 billion. The company’s adjusted net income came in at $505.10 million, representing an increase of 10.5% year-over-year, while its adjusted net income per Class A share rose 10.1% from the prior-year value to $0.87.
Analysts expect ACI’s revenue to increase 4.5% year-over-year to $18.17 billion for the fiscal fourth quarter (ended February 2023). It has a commendable earnings surprise history, surpassing the consensus revenue estimates in each of the four trailing quarters. ACI’s shares have lost marginally over the past five days to close the last trading day at $19.20.
ACI’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.
It has a B grade in Value, Sentiment, and Quality. It is ranked #6 in the same industry. Click here to see the other ratings of ACI for Growth, Stability, and Momentum.
BJ’s Wholesale Club Holdings, Inc. (BJ)
BJ is a warehouse club operator that provides perishable, general merchandise, gasoline, coupon books, promotions, and other ancillary services, primarily on the east coast of the United States. The company sells its products through the websites BJs.com, BerkleyJensen.com, and Wellsleyfarms.com, as well as the mobile application.
On March 14, BJ partnered with Simbe to roll out the company’s business intelligence solution, Tally, to all club locations. More club conditions visibility and deeper business insights would be made possible by integrating Simbe’s AI-powered technology into chain operations, which should increase operational effectiveness.
Jeff Desroches, Executive Vice President, Chief Operations Officer at BJ’s Wholesale Club, said, “By deploying Tally in all of our club locations, we will gain unprecedented insights which will leverage real-time data, enabling us to continuously improve our operation and ensure that we’re offering the best possible experience to both our team members and members.”
In the same month, the company announced the addition of five clubs to its growing portfolio across the United States. The expansion includes plans for a new club in Madison, Alabama, expanding BJ’s retail footprint to 20 states, enabling the company to meet the demand of its growing consumer base.
For the fourth quarter that ended on January 28, 2023, BJ’s total revenue rose 13.1% from the year-ago value to $4.93 billion. Its operating income grew 22.7% from the year-ago value to $192.79 million. The company’s adjusted net income came in at $129.78 million, representing a 24.4% increase year-over-year, while its adjusted EPS stood at $1, up 25% year-over-year. In addition, its adjusted EBITDA increased 18.7% from the prior-year period to $271.33 million.
The consensus revenue estimate of $5.36 billion for the second quarter (ending July 2023) represents a 5% increase year-over-year. The consensus EPS estimate of $1.06 for the next quarter indicates a marginal improvement from the prior-year period. Moreover, it surpassed the EPS and revenue estimates in each of the trailing four quarters, which is excellent.
The stock has gained 30.8% over the past nine months to close the last trading session at $75.85.
BJ’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. It also has a B grade for Sentiment. Within the same industry, it is ranked #19 of 37 stocks.
Click here to see the additional ratings for BJ (Growth, Value, Momentum, Stability, and Quality).
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WMT shares were trading at $140.01 per share on Tuesday afternoon, down $0.89 (-0.63%). Year-to-date, WMT has declined -0.85%, versus a 3.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta’s profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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