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.

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 WMT maintained at Buy, price target lifted from $140 to $145.

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

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

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

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

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

Related Links:

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

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