Market Overview

Barclays Shrugs At Food & Staples Sector, Interest Piqued By Just 3 Names

Barclays Shrugs At Food & Staples Sector, Interest Piqued By Just 3 Names

Barclays initiated coverage of the food and staples retailing industry with a Neutral view and categorized the 19 stocks in their coverage into four groups, namely: "growth stars, stable staples, in transition and attempting to reinvest."

In a note released Thursday, the firm said it is Overweight only on Wal-Mart Stores, Inc. (NYSE: WMT), Sprouts Farmers Market Inc (NASDAQ: SFM) and Performance Food Group Co (NYSE: PFGC).

Barclays analyst Karen Short noted that most stocks in the sector have declined notably in the year-to-date period. The analyst sees challenging times for the food retailers, given successive years of deflation. With Wal-Mart acting as the disruptor, the analyst sees most companies in her universe facing risk.

Related Link: Barclays Neutral On Food & Staples Retailing Stocks

Accordingly, Barclays feels many names will remain range bound for the next several quarters. Naming Wal-Mart as its top pick (upgraded to Overweight), the firm noted that it has assumed coverage on the retailer and Costco Wholesale Corporation (NASDAQ: COST) at Equal Weight.

Explaining the rating from the returns perspective, Barclays noted that its Overweighted stocks are likely to generated returns of 17.9 percent compared to 4.9 percent for Equal Weight and -0.4 percent for Underweight.

The four segments Barclays used to categorize companies in its coverage is based on whether a company can generate or reduce shareholder value in the context of growth top line and increasing return on invested capital. Those categorized as growth stars or stable staples are gaining share and have appropriate long-term strategies.

Meanwhile, companies in the transition quadrant may be kept in the quadrant in the intermediate term due to secular challenges despite their best efforts and appropriate strategy or need to alter their strategy to create incremental shareholder value and transition to being a growth star or stable staples. Those in the attempting to reinvent quadrant face meaningful secular challenges, and in most cases, valuations reflect these challenges.

Barclays Segmentation Of Food Retailers

Growth Stars:

  • Casey's General Stores Inc (NASDAQ: CASY): Equal Weight, $116 price target.
  • Sprouts: Overweight, $24 price target.
  • Five Below Inc (NASDAQ: FIVE): Equal Weight, $42 price target.
  • Smart & Final Stores Inc (NYSE: SFS): Equal Weight, $13 price target.

Stable Staples:

  • Costco: Equal Weight, $158 price target.
  • Wal-Mart: Overweight, $87 price target.
  • Kroger Co(NYSE: KR): Equal Weight, $33 price target.
  • SYSCO Corporation(NYSE: SYY): Underweight, $48 price target.
  • Performance Food Group: Overweight, $28 price target.
  • SpartanNash Co (NASDAQ: SPTN): Equal Weight, $31 price target.

In Transition:

  • Dollar General Corp. (NYSE: DG): Equal Weight, $74 price target.
  • Dollar Tree, Inc. (NASDAQ: DLTR): Equal Weight, $88 price target.
  • Whole Foods Market, Inc. (NASDAQ: WFM): Equal Weight, $30 price target.
  • Big Lots, Inc. (NYSE: BIG): Equal Weight, $51 price target.
  • United Natural Foods, Inc.(NASDAQ: UNFI): Underweight, $40 price target.
  • The Chefs Warehouse, Inc (NASDAQ: CHEF): Equal Weight, $12 price target.
  • Natural Grocers by Vitamin Cottage Inc (NYSE: NGVC): Equal Weight, $12 price target.

Attempting To Reinvest

  • GNC Holdings Inc (NYSE: GNC): Equal Weight, $21 price target.
  • Vitamin Shoppe Inc (NYSE: VSI): Equal Weight, $29 price target.

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