The stock market has been severely affected due to surging inflation and the Fed’s continued efforts to bring prices down by raising the interest rates. The consumer price index rose 8.6% in May from a year ago, the highest increase since December 1981.
According to Dow Jones, consumer prices remained higher in June, with the headline consumer price index expected to have increased 8.8% year-over-year.
Consumers usually feel the pinch of inflation most acutely on the price they pay at the grocery store. However, even though consumers might reduce their grocery budgets or shift their brand loyalties, they would still require groceries. That is why investors consider grocery companies among the greatest defensive stocks to invest in during a bear market.
According to a report by Mastercard SpendingPulse, U.S. grocery retail sales climbed 14% year over year in June, the third straight month of double-digit gains.
Despite suffering higher input costs, fundamentally sound grocery stocks Costco Wholesale Corporation (COST), The Kroger Co. (KR), and Casey's General Stores, Inc. (CASY) have exhibited solid profitability and delivered robust returns to shareholders. So, we think investing in these resilient stocks could be wise.
Costco Wholesale Corporation (COST)
COST is involved in the operation of membership warehouses in the United States, Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Korea, Australia, Spain, France, Iceland, China, and Taiwan. It offers branded and private-label products in a range of merchandise categories.
Last month, COST completed a purchase for $1.05 billion by a wholly-owned subsidiary of the 45% minority interest in Costco-Taiwan, a joint venture, from their long-time joint venture partners. The company now indirectly owns all of Costco Taiwan. The company has estimated that the purchase will be approximately 1-1.5% accretive to earnings per share.
For the third quarter ending May 8, 2022, COST's total revenue increased 16.2% year-over-year to $52.60 billion. Its operating income improved 7.7% from its year-ago value to $1.79 billion, while its net income grew 10.9% year-over-year to $1.35 billion. The company's EPS increased 10.5% from its prior-year quarter to $3.04.
Analysts expect COST's revenue to increase 13.8% year-over-year to $71.34 billion for the fourth quarter ending August 2022. The consensus EPS estimate of $4.12 represents a 5.7% improvement year-over-year for the fourth quarter ending August 2022.
Moreover, it has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in all of the trailing four quarters. The stock has gained 20.3% over the past year.
COST's POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock also has a B grade for Growth and Sentiment. Within the A-rated Grocery/Big Box Retailers Industry, it is ranked #28 of 38 stocks.
To see additional POWR Ratings for Value, Quality, Stability, and Momentum for COST, Click here.
The Kroger Co. (KR)
KR functions as a retailer in the United States. The company operates combination food and drug stores which offer natural food and organic sections, pharmacies, general merchandise, pet centers, fresh seafood, and organic produce, and multi-department stores which provides apparel, home fashion and furnishings, outdoor living, electronics, automotive products, and toys, marketplace stores, and price impact warehouses.
Last month, KR announced a 35,000-square-foot expansion at Tamarack Farms Dairy to aid the implementation of a state-of-the-art aseptic milk line capable of manufacturing products such as half and half, heavy whipping cream, coffee creamers, and Carbmaster milk beverage. The new line will allow the facility to support over 150 jobs.
Also, last month, KR announced it would offer more American delivery through the addition of a new customer fulfillment center (CFC) in Aurora, Colorado, powered by the Ocado Group, engineering a model for the region, leveraging advanced robotics technology and creative solutions to redefine the customer experience in the Denver Metro Area.
KR's sales increased 8% year-over-year to $44.60 billion during the first quarter of 2022. Its operating profit amounted to $1.51 billion, up 87% from its prior-year quarter. The company’s net earnings increased 374.3% from its year-ago value to $664.00 million, while its EPS rose 400% year-over-year to $0.90.
The consensus EPS estimate of $0.78 represents a 0.5% improvement year-over-year during the third quarter ending October 2022. Analysts expect KR's revenue to increase 7.6% year-over-year to $34.09 billion during the second quarter ending July 2022. In addition, the company has an impressive earnings history as it surpassed the consensus EPS estimate in all of the trailing four quarters.
The company's shares have surged 24.3% over the past year and 19.5% over the past nine months.
KR's strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The stock also has a B grade for Growth, Value, and Quality. Within the same industry, it is ranked #6.
In total, we rate KR on eight different levels. Beyond what we've stated above, we have also given KR grades for Sentiment, Stability, and Momentum for KR. Click here.
Casey's General Stores, Inc. (CASY)
CASY operates convenience stores under the Casey's and Casey's General Store names. Its stores offer a selection of food, including freshly prepared foods, such as pizza, donuts, and sandwiches; beverages; tobacco and nicotine products; health and beauty aids; automotive products; and other nonfood items.
Last month, CASY and MTN DEW announced the launch of MTN DEW OVERDRIVE, the newest addition to the MTN DEW flavor line-up, exclusively available at CASY’s convenience stores. The latest long-term offering, which packs a refreshing citrus punch taste with hints of mango, raspberry, and lime flavors, will be available starting in June only at Casey’s, in more than 2,400 stores.
In the fourth quarter ending April 30, 2022, CASY's total revenue increased 45.4% year-over-year to $3.45 billion. Its net income came in at $59.78 million, up 43.4% from its prior-year quarter, while its EPS improved 42.9% year-over-year to $1.60. Its cash and cash equivalent stood at $158.88 million for the quarter ending April 30, 2022.
The $2.80 consensus EPS estimate represents an 8.2% improvement year-over-year for the second quarter ending October 2022. Analysts expect CASY's revenue to increase 43.2% year-over-year to $4.56 billion for the first quarter ending July 2022.
Moreover, the company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in three of the trailing four quarters.
The company’s shares have surged 3.8% over the past nine months.
It is no surprise that CASY has an overall A rating, equating to Strong Buy in our POWR Ratings system. CASY has a B grade for Quality. In the same industry, it is ranked #9.
Click here to see the additional POWR Ratings for CASY (Stability, Growth Momentum, Sentiment, and Value).
COST shares were unchanged in premarket trading Wednesday. Year-to-date, COST has declined -13.31%, versus a -19.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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