Food Retailers’ Valuations as They Exit 2017



Comparing valuations

In this part, we’ll discuss Walmart (WMT), Kroger (KR), Sprouts Farmers Market (SFM), and Supervalu’s (SVU) valuations. We’ll see which of these companies has the most appealing valuations.

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Kroger versus Walmart

Let’s start with the largest supermarket—Kroger. Its stock took a beating in 2017, mainly due to growing pessimism in food retail. It closed the year with a loss of more than 20% in the stock market. Kroger stock closed 2017 with a one-year forward PE (price-to-earnings) ratio of 13.5x as of December 31—compared to a three-year average of 16x.

Walmart’s (WMT) stock price rose 42% in 2017. It’s trading at ~21x the next 12-month earnings multiple—compared to a three-year average of 16.5x.

Most expensive player

Sprouts Farmers Market (SFM) weathered the Amazon (AMZN) storm swiftly and its stock rose 29% in 2017. The organic and natural food retailer is trading at ~23x, which is at a premium to Kroger and Walmart. However, the company is cheaper historically. It has a three-year average forward PE ratio of 26x.

Most affected player

The last food retailer on the list is Supervalu. It was the biggest loser among food retailers in 2017. Its stock price fell 55% during the year before finally settling at a loss of 34% at the end of 2017. Supervalu’s stock price took a hit after Amazon acquired Whole Foods in June. However, what’s interesting is the fact that Supervalu is more of a wholesaler than a food retailer. The company derives ~60% of its sales from its wholesaling business. It doesn’t share a common customer base with Amazon.

Supervalu stock is valued at 8.8x on one-year forward PE ratio—compared to a three-year average of 9.4x. The company is cheaper than other retailers. So, is it the best buy? We’ll answer this question in the next part.


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