The grocery market is expanding globally, driven by changing consumer preferences toward healthier options and the rapid growth of e-commerce. However, challenges such as supply chain disruptions and sustainability concerns pose obstacles to market growth, necessitating innovation and investment to address them effectively.

Thus, fundamentally strong grocery stocks Village Super Market, Inc. (VLGEA) and Albertsons Companies, Inc. (ACI) could be ideal buys. However, it might be best to keep Dollar Tree, Inc. (DLTR) on hold.

In January 2024, the U.S. online grocery market saw a 2% increase in sales, reaching a total of $8.50 billion compared to the previous year. Ship-to-home sales notably surged by 7.8% to $1.50 billion, while Delivery sales slipped slightly to $3 billion.

Besides, the global food and grocery retail market has grown due to increased online sales, consumer polarization, and COVID-19-induced demand for cooking at home. Innovations in delivery models and personalized customer experiences are driving industry evolution. The global food and grocery retail market is expected to grow at a CAGR of 3.2% from 2024 to 2030.

Moreover, changing consumer preferences post-pandemic and the growth of e-commerce are driving significant expansion in the global online grocery market. Innovations in delivery options, technology, and attractive discounts are key factors spurring this growth. The market is anticipated to grow at a CAGR of 26.8% by 2030.

As a result, the global grocery delivery market is projected to reach $786.80 billion this year. It is further expected to expand at a robust CAGR of 12.7% to reach $1.27 trillion by 2028.

Considering these conducive trends, let’s examine the fundamentals of three Grocery/Big Box Retailers stocks.

Stocks to Buy:

Village Super Market, Inc. (VLGEA)

VLGEA is a supermarket chain offering a variety of groceries, including meat, produce, dairy, deli, seafood, prepared foods, bakery, and frozen foods. The company also sells non-food items like health and beauty products, general merchandise, liquor, and pharmacy items through both physical and online stores.

The company pays a dividend of $1 annually, which translates to a yield of 3.89% on the prevailing price level. Its four-year average dividend yield is 4.33%.

VLGEA’s trailing-12-month asset turnover ratio of 2.26x is 173.3% higher than the industry average of 0.83x. The stock’s trailing-12-month cash per share of $9.09 is 399.4% higher than the industry average of $1.82.

During the first quarter, which ended October 28, 2023, VLGEA’s net sales and gross profit rose 3.2% and 2.5% year-over-year to $536.35 million and $152.95 million, respectively. The company generated operating income of $14.15 million. Also, its net income grew 4.5% from a year-ago quarter to $11.59 million.

The company surpassed the revenue estimates in each of the trailing four quarters, which is notable. VLGEA’s shares have surged 21.6% over the past nine months to close the last trading session at $25.70. It gained 1.1% intraday.

VLGEA’s POWR Ratings reflect this optimistic outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.

It has an A grade for Value and Stability and a B for Quality. Among the 38 stocks in the A-rated Grocery/Big Box Retailers industry, it is ranked #5.

In addition to the POWR Ratings stated above, access VLGEA’s Growth, Momentum, and Sentiment ratings here.

Albertsons Companies, Inc. (ACI)

ACI operates food and drug stores nationwide, providing a wide range of products and services, including groceries, pharmacy, and fuel. The company also manufactures food products sold in its stores under various banners.

On February 9, 2024, ACI paid a cash dividend for the fourth quarter of fiscal 2023 of $0.12 per common share. The company pays $0.48 annually, which translates to a yield of 2.26% on the prevailing price level. The company has raised its dividend payouts at a CAGR of 33.9% over the past three years.

ACI’s trailing-12-month asset turnover ratio of 2.79x is 235% higher than the industry average of 0.83x. The stock’s trailing-12-month cash from operations of $2.51 billion is 203.8% higher than the industry average of $827.15 million.

In the fiscal third quarter, which ended December 2, 2023, ACI’s net sales and other revenue increased 2.2% from the previous-year quarter to $18.56 billion. The company's adjusted net income and EBITDA amounted to $462.30 million and $1.11 billion, respectively. It reported adjusted net income per Class A common share of $0.79.

Street expects ACI’s revenue to grow 1% year-over-year to $18.45 billion for the fiscal fourth quarter, which ended February 2024. Its EPS for the same quarter is expected to be $0.52. The company surpassed the revenue and EPS estimates in three of the trailing four quarters.

The stock has gained 5.3% over the past nine months to close the last trading session at $21.27. It gained marginally intraday.

ACI’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.

ACI has a B grade for Value and Quality. Within the same industry, it is ranked #21.

To access additional ratings for ACI’s Growth, Momentum, Stability, and Sentiment, click here.

Stock to Hold:

Dollar Tree, Inc. (DLTR)

DLTR operates a discount variety of retail stores under two segments: Dollar Tree and Family Dollar. It offers a wide range of merchandise, including consumables, household items, seasonal goods, apparel, electronics, and more at fixed prices, with Dollar Tree items priced at $1.25.

DLTR’s trailing-12-month CAPEX/Sales of 5.54% is 72.7% higher than the industry average of 3.21%. The stock’s trailing-12-month EBITDA of 8.45% is 26.3% lower than the industry average of 11.47%.

During the third quarter, which ended October 28, 2023, DLTR’s total revenue rose 5.4% year-over-year to $7.31 billion. The company generated adjusted net income of $212 million. But, its adjusted operating income decreased 20.9% from the previous-year quarter to $301.70 million. Also, its EPS decreased 19.2% year-over-year to $0.97.

Analysts expect DLTR’s revenue to grow 8.1% from the prior-year quarter to $30.64 billion, respectively, in the fiscal year ended January 2024. But its EPS for the same quarter is expected to fall 16.7% year-over-year to $6.

The stock rose 25.2% over the past three months to close the last trading session at $142.83. However, it lost 2.9% over the past year.

DLTR’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, equating to Neutral in our proprietary rating system.

It has a C grade for Growth, Value, Stability, Sentiment, and Quality. It is ranked #34 in the same industry.

Click here to see DLTR’s additional Momentum rating.

What To Do Next?

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DLTR shares were trading at $140.14 per share on Tuesday afternoon, down $2.69 (-1.88%). Year-to-date, DLTR has declined -1.34%, versus a 4.06% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

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