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4 Retailers Poised for Stellar Q3 on Booming Grocery Demand

Sumit Singh
·7 min read

While the coronavirus pandemic has severely impacted the retail ecosystem, grocery chains and essential retailers have been in good shape, thanks to unfading demand. Items such as toilet paper, disinfectants, masks, gloves, packaged water, medicines and related food staples have been topping the shopping list for a while now, as people still prefer purchasing essentials and other household products before splurging on fashion and leisure items.

Well this change in consumer behavior is here to stay, as working and dining at home have become the new normal. A survey by Acosta suggests that more than 50% of U.S. consumers have been eating more often at home, since the onset of COVID-19. Also, consumers are largely reducing the frequency of their shopping trips to maintain social distancing, and in turn loading pantries at once or shopping online.

No wonder, retailers have been walking the extra mile to stay connected with consumers and provide frictionless shopping experience. Evidently, product innovation, prudent pricing and digitization are the need of the hour. Industry experts believe that demand for groceries is likely to remain elevated and players with better store footprints, strong omni-channel capabilities and enhanced delivery and payment systems will stand out.

To this end, companies’ same-day and last-mile delivery services, and buy online and pick-up in store facilities bode well. In fact, companies’ initiatives to expand delivery options and contactless payment solutions have been a boon amid the pandemic, helping them cater to soaring demand arising from stay at-home trends and social distancing.

Our Choices for Now

Although lockdowns have been lifted in most states and businesses have resumed, resurgence of coronavirus cases has fueled fears of a second wave of COVID-19. And with no sure shot treatment as of now, there is a lot of uncertainty surrounding the duration and severity of the virus. Amid such concerns, investing in grocery stocks is a tempting option at the moment. Grocery stocks have always been safe bets and the pandemic just threw light on how secure these stocks can be during extreme market volatility.

All said, here we have shortlisted four stocks on the basis of a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.

Target Corporation TGT has been consolidating its position in the food and beverage space with robust portfolio of owned and exclusive brands. The company’s commitment to offer unique shopping experience with safe and convenient options including contactless Drive Up and Order Pickup, and same-day delivery with Shipt are worth mentioning. Customers are responding positively to such shopping tools, making Target a grocery-go-to destination. Notably, Target’s flourishing Good & Gather grocery brand generated above $1-billion sales in less than a year. The brand is expected to become Target’s largest owned-brand with around 2,000 items on the list. The expansion of the Good & Gather brand includes the Signature line featuring 60 premium products with specialty ingredients and flavors. Here, guests can avail pizzas, pasta and coffee similar to what is offered in an Italian cafe.

The stock has a Zacks Rank #1 and a VGM Score of A. This general merchandise retailer has a trailing four-quarter earnings surprise of 37.6%, on average. It has a long-term earnings growth rate of 7.2%. Moreover, the Zacks Consensus Estimate for its third-quarter fiscal 2020 sales and earnings indicates an improvement of 10.8% and 12.5%, respectively, from the year-ago period.

The Kroger Co. KR has been undergoing a complete makeover, not only with respect to products but also in terms of the way consumers prefer shopping grocery. The company is focusing on plant-based products and eyeing technological expansion. Its acquisition of meal kit company, Home Chef, and partnership with British online grocery delivery firm, Ocado, reinforces its position. The company recently announced the launch of two on-premise ghost kitchens across its stores in Metro Indianapolis, IN and Metro Columbus, OH, in collaboration with ClusterTruck. The on-premise kitchen streamlines ordering, preparation and delivery, thus enabling Kroger to efficiently cater to growing customer demand for quick, fresh, restaurant-quality meals. In recent developments, the company has expanded its private-label Simple Truth Plant Based roster with over 50 fresh and flavorful plant-based food items at reasonable prices.

The stock has a Zacks Rank #1 and a VGM Score of A. This operator of supermarkets and multi-department stores has a trailing four-quarter earnings surprise of 13%, on average. It has a long-term earnings growth rate of 6.2%. Moreover, the Zacks Consensus Estimate for its third-quarter fiscal 2020 sales and earnings indicates an improvement of 7.1% and 38.3%, respectively, from the year-ago period.

Walmart Inc. WMT has been making inroads into the burgeoning online grocery space. The company recently unveiled its Walmart+ membership program, offering unlimited free delivery of more than 160,000 items sold in stores, including groceries. Additionally, customers can avail discounts for fuel and have Scan & Go options to skip the checkout line. Prior to this, the company launched Express Delivery during the first quarter of fiscal 2021 at several stores, which helps it deliver orders to customers in less than two hours. In earlier developments, Walmart's deal with Postmates, contract with DoorDash and acquisition of Parcel highlight its focus on enhancing grocery sales.

The stock has a Zacks Rank #2 and a VGM Score of A. This operator of supermarkets, warehouse clubs and cash and carry stores has a trailing four-quarter earnings surprise of 9.5%, on average. It has a long-term earnings growth rate of 5.6%. Moreover, the Zacks Consensus Estimate for its third-quarter fiscal 2021 sales and earnings indicates an improvement of 2.9% and 1.7%, respectively, from the year-ago period.

Investors can also count on SpartanNash Company SPTN, which distributes and retails grocery products. The company has been benefiting from consumers increased spending on essentials such as groceries, amid the coronavirus pandemic. The trend was well exemplified in the company’s second-quarter fiscal 2020 results. Consolidated net sales rose 9.4% during second-quarter 2020, representing the 17th successive quarter of increase. The results surpassed management’s expectations as the company benefited from increased consumer demand related to COVID-19 in the Retail and Food Distribution segments and strong growth from existing customers in the Food Distribution segment. Markedly, the company’s sturdy e-commerce platform, data insights and understanding of consumer preferences, and systems and infrastructure position it well for success. Moreover, with deepened ties with Amazon AMZN, the company is likely to solidify its presence in the grocery space. In fact, the pact with Amazon is likely to fortify SpartanNash’s e-commerce business, which registered growth of more than 300% during the second quarter.

The company has a trailing four-quarter earnings surprise of 21.5%, on average. The stock has a Zacks Rank #2 and a VGM Score of A. Moreover, the Zacks Consensus Estimate for its third-quarter fiscal 2020 sales and earnings suggests an improvement of 7.6% and 106.7%, respectively, from the year-ago period.

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Target Corporation (TGT) : Free Stock Analysis Report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Walmart Inc. (WMT) : Free Stock Analysis Report
 
The Kroger Co. (KR) : Free Stock Analysis Report
 
SpartanNash Company (SPTN) : Free Stock Analysis Report
 
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