Amid widespread macroeconomic headwinds, the global economic outlook seems uncertain. However, the Fed has finally started contemplating smaller rate hikes. Although uncertainties remain, we think fundamentally strong stocks Walmart (WMT), Centene Corporation (CNC), and Kroger (KR) are quality investments. Continue reading.
The global economic outlook remains highly uncertain. The central bank has raised rates at the fastest pace since the 1980s this year. With many economists expecting borrowing costs to hurt spending with greater force in the coming months, the economy’s pace of growth looks alarming.
Moreover, China is now battling its worst outbreak of COVID-19and the government’s rising strict and widespread lockdowns are squashing hopes for an economic rebound and fanning concern about disruption to the world’s supply chains.
On the bright side, as the recent economic data shows signs of cooling inflation, the Fed’s minutes released on Wednesday added support to the idea that future monetary policy may be less aggressive. “A substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate,” the minutes stated.
Despite the uncertainties ahead, we believe fundamentally strong stocks Walmart Inc. (WMT), Centene Corporation (CNC), and Kroger Co. (KR) are quality investments.
Walmart Inc. (WMT)
WMT engages in the operation of retail, wholesale, and other units worldwide. The company operates through three segments: Walmart US; Walmart International; and Sam’s Club.
On October 31, WMT and Popable, a pop-up shop marketplace platform, announced a strategic partnership to offer small businesses pop-up shop opportunities inside their stores across the country for short-term leasing.
Darryl Spinks, the senior director of Retail services for Walmart, said, “This is a great example of our focus on offering services unique to the neighborhoods we serve through our store of the community initiative.”
On October 17, WMT and Straight Talk Wireless introduced Straight Talk Home Internet, an affordable, no-contract, no-credit-check, prepaid fixed wireless internet service available exclusively at Walmart. The partnership aligns with WMT’s commitment to making wireless products and services more attainable.
In February, WMT declared an annual dividend of $2.24 per share to be paid in four quarterly installments of $0.56 per share. Its annual dividend of $2.24 yields 1.47% on prevailing prices. The company’s dividend payouts have increased at a 1.9% CAGR over the past three years.
For the fiscal third quarter ended October 31, WMT’s total revenues increased 8.7% year-over-year to $152.81 billion. Its adjusted operating income rose 3.9% year-over-year to $6.02 billion, and its adjusted EPS rose 3.4% year-over-year to $1.50.
The consensus EPS estimate of $1.43 for the fiscal first quarter ending April 2023 represents a 10.1% improvement year-over-year. The consensus revenue estimate of $145.48 billion for the same quarter indicates a 3.7% increase from the prior-year quarter. The company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in three of the trailing four quarters.
Its stock gained marginally intraday to close the last trading session at $152.42. It has gained 9.3% over the past month. WMT has a 24-monthly beta of 0.67.
WMTs POWR Ratings reflect this promising outlook. The stock’s overall A rating translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Sentiment and a B for Stability. In the A rated Grocery/Big Box Retailers industry, WMT is ranked #10 out of 39 stocks.
To see the additional POWR ratings for WMT for Growth, Value, Quality, and Momentum, click here.
Centene Corporation (CNC)
CNC is a multinational healthcare enterprise that offers programs and services to underinsured and uninsured individuals. The company operates through the Managed Care and Specialty Services segments.
On October 25, CNC’s Evernorth and Express Scripts announced a new strategic collaboration to make prescription medications more accessible and affordable for customers. Both companies will work together to enhance the early detection of health episodes, close gaps in care, and drive improved clinical outcomes. The collaboration is expected to expand the customer base of both companies.
On September 15, CNC announced that a new six-year contract was awarded to Superior by the Texas Health and Human Services Commission (HHSC) to provide children and youth in foster care with healthcare coverage through the STAR Health Medicaid program.
CNC’s total revenues came in at $35.87 billion for the fiscal third quarter ended September 30, 2022, representing an 11% year-over-year growth. Its adjusted net earnings rose 1.3% from the same period last year to $755 million, while its adjusted EPS increased 3.2% from the prior-year quarter to $1.30.
Analysts expect CNC’s revenue for the current fiscal year ending December 2022 to improve 14.8% year-over-year to $144.59 billion. The company’s EPS for the current year is expected to increase by 11.2% from the prior year to $5.73. Additionally, CNC has topped consensus EPS estimates in each of the trailing four quarters.
CNC has gained 10.3% over the past month to close its last trading session at $83.63. The stock has a 24-monthly beta of 0.76.
It is no surprise that CNC has an overall A rating, which translates to Strong Buy in our POWR Ratings system. The stock has a B grade for Value and Quality. In the A rated Medical-Health Insurance industry, it is ranked #6 out of 11 stocks.
Beyond what we’ve stated above, we have also given CNC grades for Growth, Momentum, Stability, and Sentiment. Get all CNC ratings here.
Kroger Co. (KR)
KR operates as a retailer in the United States. The company operates combination food and drug stores, multi-department stores, marketplace stores, and price-impact warehouses.
On October 14, KR and Albertsons Companies (ACI) announced that they have entered into a definitive agreement under which the companies will merge, aiming to expand the customer reach and improve proximity to deliver fresh and affordable food to approximately 85 million households with a premier omnichannel experience.
The company expects this collaboration to drive profitable growth and sustainable value for all.
On September 15, KR declared a quarterly dividend of 26 cents per share to be paid to shareholders on December 1, 2022. Its annual dividend of $1.04 yields 2.17% on prevailing prices. The company’s dividend payouts have increased at a 16.1% CAGR over the past three years and a 13.9% CAGR over the past five years. The company has a record of 16 years of consecutive dividend growth.
KR’s sales increased 9.3% year-over-year to $34.64 billion in the fiscal second quarter ending August 13. Its operating profit increased 13.7% year-over-year to $954 million. The company’s adjusted EBITDA grew 10.9% from the year-ago value to $7.63 billion, while its adjusted EPS improved 12.5% year-over-year to $0.90.
Street expects KR’s revenue for the fiscal year ending January 2023 to come in at $148.25 billion, indicating an increase of 7.5% year-over-year. The company’s EPS is expected to grow 10.9% year-over-year to $4.08 in the same year. Additionally, the company has surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.
KR has gained 12.5% over the past year to close the last trading session at $47.84. The stock has a 24-monthly beta of 0.54.
KR’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, translating to Strong Buy in our POWR Ratings system. KR has a B grade in Value and Quality. It is ranked #6 in the Grocery/Big Box Retailers industry.
Click here to access additional POWR Ratings for KR for Growth, Momentum, Stability, and Sentiment.
WMT shares rose $0.53 (+0.35%) in premarket trading Friday. Year-to-date, WMT has gained 6.60%, versus a -14.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor’s degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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