Supermarkets Industry Outlook: Omnichannel Plans Hold The Key
Zacks Investment Research | Jan 03, 2019 04:45AM ET
The Zacks Zacks Industry Rank , which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1. The industry’s position in the top 50% of the Zacks-ranked industries is a result of an impressive earnings outlook for the constituent companies in aggregate.
Given the promising prospects, we present a few stocks that have the potential to outperform the market. But before that, it’s worth taking a look at the industry’s shareholder returns and current valuation.
Industry Beats on Stock Market Performance
The Zacks Retail – Supermarkets industry has performed better than the Zacks S&P 500 composite as well as the broader Zacks Retail – Wholesale sector over the past year.
While the industry has lost 2.6% over this period, it fares better than the S&P 500’s loss of 6.1% and the sector’s decline of 4.5%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing retail stocks, the industry is currently trading at 18.6X compared with the S&P 500’s 15.4X and the sector’s 21.8X.
Over the past five years, the industry has traded as high as 23.3X, as low as 12.5X, and at the median of 15.8X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
Bottom Line
While digital transformation has become the need of the hour, the importance of brick-and-mortar is not being ignored. Thus, companies in the space are likely to gain from their omni-channel efforts. However, increased mix of e-commerce sales, increased promotions, compelling pricing and intense competition may keep margins under pressure.
Notably, one stock from the Retail – Supermarkets universe currently sports a Zacks Rank #1 (Strong Buy), while a major stock carries a Zacks Rank #2 (Buy). We are also presenting a stock with a Zacks Rank #3 (Hold) that is well positioned to capitalize on the opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here .
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Ingles Markets, Inc. (IMKTA) has an estimated long-term earnings growth rate of 9.1%. The Zacks Rank #1 company has seen its estimates for the current fiscal EPS jump 3.2% over the last 30 days.
Price and Consensus: IMKTA
Walmart (NYSE:WMT) Inc. (WMT): This world’s largest retailer has gained close to 12% over the past six months. The company, which has seen its earnings estimates for the current fiscal increase over the past 30 days, currently carries a Zacks Rank #2. Also, Walmart boasts an impressive earnings surprise history, while the supermarket biggie has a long-term EPS growth rate of 5.1%.
Price and Consensus: WMT
The Kroger (NYSE:KR) Co. (KR), which has gained 3% in the past year, carries a Zacks Rank #3. The Zacks Consensus Estimate for current fiscal EPS has gone up in the last 30 days. Kroger, which has surpassed earnings estimates by an average of 8.9% in the trailing four quarters, carries a long-term EPS growth rate of 6.8%.
Price and Consensus: KR
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