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Key Takeaways From BofA's Deep Dive Into Grocery Stocks

Grocery sales growth remain elevated on a year-over-year basis, but have moderated since peak coronavirus "stock-up" activity in the middle of March, according to BofA Securities.

Benzinga · 05/13/2020 20:08

Grocery sales growth remain elevated on a year-over-year basis, but have moderated since peak coronavirus "stock-up" activity in the middle of March, according to BofA Securities.

The Analyst

Robert Ohmes commented on the grocery store sector in a deep dive note.

Grocery Store Facts

Grocery store sales rose 28.3% year-over-year at conventional supermarkets and 16% year-over-year across all outlets throughout April, Ohmes said in a note.

This marks a deceleration in growth from 43.7% and 33.1% year-over-year, respectively in March.

At their peak, conventional supermarkets sales were up 94.4% year-over-year for the week ending March 21, while total grocery sales were up 70% across all channels, the analyst said.

While there might be some "pull-forward" pressure as consumers eat what's in their pantries instead of buying new items, grocery sales are still likely to sustain a higher year-over-year pace as many dine-in restaurants remain closed, he said. 

The Food at Home CPI rose 4.1% in April, which marks the highest inflation rate seen in over eight years and the first time in five years it deviated from the long-term average of 2%, Ohmes said.

This could be due to much lower promotional activity, as 17.9% of total store sales were on promotional items versus 28.7% last April, according to BofA. 

Price Target Increases

Expectations for stronger-than-usual grocery sales growth and profit trends through at least the end of 2020 support a higher valuation for grocery chains, Ohmes said. 

The analyst made the following changes:

Walmart Inc (NYSE: WMT) maintained at Buy, price target lifted from $140 to $145.

Target Corporation (NYSE: TGT) maintained at Buy, price target lifted from $125 to $145.

Dollar General Corp. (NYSE: DG) maintained at Buy, price target lifted from $200 to $220.

Kroger Co (NYSE: KR) maintained at Buy, price target lifted from $37 to $42.

BJs Wholesale Club Holdings Inc (NYSE: BJ) maintained at Buy, price target lifted from $33 to $38.

Sprouts Farmers Market Inc (NASDAQ: SFM) maintained at Underperform, price target lifted from $18 to $20.

Related Links:

Will Consumers Return To Restaurants After Learning How To Cook At Home?

Coronavirus Drives Surge In Online Grocery Penetration For Players Like Amazon Prime Now, Walmart

Public domain photo via Wikimedia