Despite the macroeconomic issues, the big box retailers are well positioned to experience stable growth because of the inelastic demand for their goods. Given the industry’s defensive nature, investors should check out fundamentally strong stocks, Tesco PLC (TSCDY) and Albertsons Companies, Inc. (ACI). These stocks look undervalued at current prices.
The NRF published its annual estimate, predicting retail sales to increase by 4% to 6% in 2023. This year, NRF expects global retail sales to amount between $5.13 trillion and $5.23 trillion.
Moreover, with online shopping's growing popularity, it's no surprise that the e-commerce share of retail sales has increased in recent years. The online market share has increased by 0.1 percentage points. Analysts expect that the worldwide ecommerce proportion of retail sales will rise to 20.2% in 2023. It is expected to reach 23.3% by 2026, a 4.1%-point growth in just six years.
Investors’ interest in retail stocks is evident from the VanEck Vectors Retail ETF’s (RTH) 3.7% return over the past six months.
Let’s delve deeper into the fundamentals of the stocks.
Tesco PLC (TSCDY)
Headquartered in Welwyn Garden City, the United Kingdom, TSCDY, together with its subsidiaries, engages in retailing and retail banking activities.
TSCDY’s forward EV/Sales multiple of 0.46 is 73.4% lower than the industry average of 1.73. Its forward EV/EBITDA multiple of 7.12 is 41.1% lower than the industry average of 12.09.
TSCDY’s trailing-12-month asset turnover ratio of 1.38x is 60.5% higher than the industry average of 0.86x.
TSCDY’s net sales increased 7.2% year-over-year for the year ended February 25, 2023, to £65.76 billion ($82.61 billion). Also, its total current assets came in at £12.52 billion ($15.73 billion) for the period that ended February 25, 2023, compared to £11.82 billion ($14.85 billion) for the period that ended February 26, 2022.
The consensus revenue estimate of $85.28 billion for the year ending 2024 represents a 3.5% increase year-over-year. Its EPS to is expected to come in at $0.79 in 2024. The stock has gained 40.4% over the past six months to close its last trading session at $10.48.
TSCDY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
TSCDY has a B for Stability. Within the A-rated Grocery/Big Box Retailers industry, it is ranked #25 out of 37 stocks. Click here for the additional POWR Ratings for Growth, Value, Sentiment, and Quality for TSCDY.
Albertsons Companies, Inc. (ACI)
ACI is a food and drug retailer operating over 2,276 stores across 34 states and the District of Columbia. Its stores offer a variety of products, including grocery, general merchandise, health and beauty care, pharmacy, and fuel.
On April 7, 2023, ACI established a partnership with FIS, a worldwide financial services technology provider, to represent supplemental health benefits administrators such as Fresh Connect, PayForward, and WEXTM that use its technology payment platform. This partnership should be beneficial for ACI.
ACI’s forward EV/Sales multiple of 0.34 is 80.7% lower than the industry average of 1.73. Its forward Price/Sales multiple of 0.15 is 87.1% lower than the industry average of 1.17.
ACI’s trailing-12-month asset turnover ratio of 2.86x is 233.3% higher than the 0.86x industry average. Its trailing-12-month ROCE of 52.22% is 382% higher than the 10.83% industry average.
ACI’s net sales and other revenue increased 5.1% year-over-year to $18.27 billion in the fourth quarter, which ended February 25, 2023. Its adjusted net income increased 5.2% year-over-year to $459.70 million, while its adjusted EPS class A increased 5.3% year-over-year to $0.79.
Street expects ACI’s revenue to increase 1.8% year-over-year to $79.02 billion in 2024. Its EPS is expected to come in at $2.82 in 2024. It surpassed EPS estimates in all four trailing quarters. Over the past six months, the stock has gained 3.6% to close the last trading session at $20.72.
ACI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #6 in the same industry. It has a B for Value, Sentiment, and Quality. To see additional ACI’s rating for Growth, Stability, and Momentum, click here.
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TSCDY shares were trading at $10.53 per share on Thursday morning, up $0.06 (+0.53%). Year-to-date, TSCDY has gained 30.24%, versus a 6.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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