What Wall Street Has to Say about Supermarket Stocks
In this part of our series, we’ll look at Wall Street’s recommendations for Kroger (KR), Supervalu (SVU), Whole Foods Market (WFM), and Sprouts Farmers Market (SFM).
Valuations of most supermarkets have taken a hit as the companies have been severely punished in the stock markets for their poor financial performance and bleak outlooks.
The grocery and food retail sector remained under pressure through most of 2016 on concerns of persistent deflation and increasing competition.
Supermarkets (XRT) had a bumpy ride in 2016 as deflationary headwinds negatively impacted their same-store sales and margins.
2016 turned out to be a tough year for the US grocery sector. Food deflation crimped the top and bottom lines of major grocers.
We’ll focus on four supermarkets: Kroger (KR), Whole Foods Market (WFM), Sprouts Farmers Market (SFM), and Supervalu (SVU).
Supervalu is now trading ~40% below its 52-week-high price and is already sitting at a YTD (year-to-date) loss of 5%.
Supervalu is trading at 9.6x its next-12-month earnings as of January 11, 2017.
Supervalu’s Retail Food segment, which operates under banners like Cub Foods, Farm Fresh, and Shop ‘n Save, reported a 3.4% fall in sales to ~$1.1 billion.
Supervalu (SVU) sold its discount grocery chain, Save-A-Lot, to a private equity firm in 2016 for ~$1.4 billion to relieve its debt-heavy balance sheet.
The Wholesale segment’s fiscal 3Q17 sales got a boost from SVU’s recent agreements with new clients as well as from increased sales in its new stores.
Supervalu released its fiscal 3Q17 results on January 11, reporting a net loss of $11 million from continuing operations.
Supervalu’s fiscal 3Q17 adjusted EPS stood at $0.05, missing Wall Street’s expectations of $0.08. Revenues fell 1.4% YoY to $3 billion, missing estimates by ~21%.
Analysts have a positive to neutral view on Walgreens and has rated its stock a “2” on a scale of “1-strong buy” to “5-sell.”
Walgreens stock is currently trading at 16.1x the next 12 months’ earnings, operating close to the lower end of its 52-week PE range of 15.8x–18.8x.
Walgreens stock has performed better than its peers over the last year. Wall Street is expecting a 13.0% rise in the stock over the next 12 months.
Walgreens (WBA) is a consistent dividend payer. It has paid dividends for 336 consecutive quarters and increased its dividend for 41 consecutive years.
In fiscal 1Q17, sales for WBA’s Retail Pharmacy USA division rose 1.4%. It was the only segment that reported sales growth.
WBA’s better-than-expected earnings can be attributed to recent partnerships with PBMs, ongoing cost control, and higher sales of Medicare Part D drugs.
In fiscal 1Q17, WBA reported a top-line fall for the first time in the last 16 quarters. But the fall in revenues was primarily due to currency headwinds.