Grocery Chain Could Be Top Buy While Inflation Stays High

Inflation is expected to remain high despite the rising interest rates. Amid high inflationary pressure, grocery chain companies could offer steady returns because of the inelastic demand for their products. Thus, fundamentally sound grocery chain stocks The Kroger (KR) and Sanderson Farms (SAFM) could be solid buys to protect your portfolio against elevated inflation. Let’s discuss.

Inflation accelerated in May, with the consumer price index (CPI) rising 8.6% from a year ago, marking the highest increase since December 1981. Given the continued supply chain disruptions, inflation is expected to surge further despite the Fed’s interest rate hikes. Treasury Secretary Janet Yellen told senators that she expects the inflation to remain high for the rest of 2022.

Since inflation is expected to remain high in the upcoming months, consumer staples stocks are attractive investments because of the inelastic demand for their products. While several companies are struggling financially amid surging commodity prices, grocery chain companies are well-positioned to pass on high costs to consumers and stay afloat.

Against this backdrop, it could be wise to add quality grocery chain stocks, The Kroger Co. (KR) and Sanderson Farms, Inc. (SAFM), to your portfolio. These stocks are rated ‘Strong Buy’ in our proprietary POWR Ratings system.

The Kroger Co. (KR)

KR is a leading retailer in the United States. The company operates combination food and drug stores, multi-department stores, marketplace stores, and price impact warehouses. Additionally, it sells fuel through 1,613 fuel centers. KR operates more than 2,726 supermarkets under various names in 35 states and the District of Columbia.

On June 20, 2022, KR expanded customer access to electric vehicle (EV) charging stations. More than 350 chargers have been implemented in different areas, including Arizona, California, Colorado, Georgia, Indiana, Texas, Oregon, Utah, and Wyoming. More changes are expected to be installed by the end of 2022.

“Increasing our customers' access to EV charging stations at convenient Kroger locations supports our collective transition to a lower-carbon economy. We are leveraging technology and innovation to reduce our greenhouse gas emissions,” said Yael Cosset, KR’s Senior Vice President and Chief Information Officer.

In the fiscal 2023 first quarter ended March 31, 2022, KR's net sales increased 8% year-over-year to $44.60 billion. Its operating profit grew 87% year-over-year to $1.51 billion. The company's net earnings and net earnings attributable to KR per common share amounted to $664 million and $0.91, registering an increase of 374.3% and 405.6% from the prior-year period, respectively.

Analysts expect KR’s EPS to grow 5.8% year-over-year to $1.62 for the fiscal year 2023, ending January 2023. The $147.29 billion consensus revenue estimate for the current year represents a 6.8% rise from the last year.

Shares of KR have increased 14.3% over the past nine months and 19.23% over the past year to close the last trading session at $146.20.

KR's POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

KR has a grade of B for Value, Growth, and Quality. Within the A-rated Grocery/Big Box Retailers industry, it is ranked #7 of 38 stocks.

To see additional POWR Ratings (Sentiment, Momentum, and Stability) for KR, click here.

Sanderson Farms, Inc. (SAFM)

SAFM is an integrated poultry processing company. It produces, processes, markets, and distributes fresh, frozen, and prepared chicken products in the U.S. The company sells its products primarily under the Sanderson Farms brand name to retailers, distributors, and casual dining operators across the U.S.

SAFM's net sales increased 35.8% year-over-year to $1.54 billion in the fiscal 2022 second quarter ended April 30, 2022. Its operating income rose 230.1% from the prior-year period to $421.49 million. In addition, the company’s net income and earnings per share came in at $321.19 million and $14.39, registering a rise of 231.4% and 231.6% year-over-year, respectively.

The $1.77 billion consensus revenue estimate for the fiscal 2022 third quarter, ending July 2022, represents a 30.8% improvement from the same period last year. Analysts expect SAFM’s EPS for the ongoing quarter to increase 86.7% year-over-year to $13.78. The company has topped the consensus revenue and EPS estimates in each of the trailing four quarters.

The stock has gained 9% year-to-date and 33.8% over the past month to close the last trading session at $208.31.

SAFM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of A, equating to a Strong Buy in our proprietary rating system.

SAFM has a grade of A for Growth and Quality. It has a B grade for Value. Within the B-rated Food Makers industry, it is ranked #4 of 87 stocks.

Click here to access additional POWR Ratings (Stability, Sentiment, and Momentum) for SAFM.

KR shares were trading at $48.18 per share on Tuesday afternoon, up $1.98 (+4.29%). Year-to-date, KR has gained 7.35%, versus a -20.82% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.


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