7 Grocery Stocks With Upside

NEW YORK (TheStreet) -- Nash-Finch Company (NAFC), The Pantry (PTRY), Vitacost.com (VITC), Winn-Dixie Stores (WINN), Core-Mark Holding Company (CORE), The Chefs Warehouse (CHEF) and Spartan Stores (SPTN) have up to 100% buy rating and likely will generate a mean return of 40% over the next one year.


7. Spartan Stores ( SPTN) is a Michigan-based grocery retailer and distributor.

Consolidated net sales for the first quarter of fiscal 2012 increased to $602.6 million, up 4.4% from the same period last year. Both the retail and distribution segments reported better sales during the quarter. Adjusted EBITDA increased 6.7% during the quarter to $24.6 million from $23 million in the year-ago period.

The company reported net cash of $6.7 million and has managed to reduce the net debt to $137 million, vs. $174 million in the corresponding quarter of fiscal 2011.

The company expects second quarter fiscal 2012 distribution sales growth and retail comparable-store sales to track the first quarter numbers. However, second half 2011 is estimated better for comparable store sales. The stock is trading at 10.7 times its estimated 2011 earnings with 50% buy rating. It is estimated to have an upside potential of 26%.

6. The Chefs Warehouse ( CHEF) is a distributor of specialty foods, ranging from premium specialty foods and ingredients.

Food cost inflation and changes in product mix had a favorable impact during the quarter as net sales increased 18.7% year-over-year to $99.3 million.

During the quarter, gross profit margin improved 30 basis points to 26.5% from 26.2% the same period last year, resulting from higher sale of protein items and multi-year customs rebate of $0.2 million.

The company is considering acquisition opportunities for faster growth. Analysts at BB&T and Canaccord Genuity initiated a buy on the stock with a target price of $20 per share and $18 per share, respectively. Analysts expect the stock to deliver 27% in the next one year with 100% buy rating.

5. Core-Mark Holding Company ( CORE) markets supply solutions to the convenience retail industry in North America.

During the second quarter of 2011, net sales increased 11.2% year-over-year to $2.04 billion. Recent acquisitions of Finkle Distributors and Forrest City Grocery Company and better performance in the food category boosted sales.

On the good quarter, Michael Walsh, CEO of Core-mark, said, "Sales rose 11% driving a 12% increase in remaining gross profit dollars. More importantly, we expect to be able to sustain solid growth and profitability trends through at least 2012 through expansion of our longstanding relationship with one of the industry's leading retailers as well as our recent acquisition of Forrest City. We are very pleased to see the hard work turn into tangible momentum."

For full year 2011, the company has raised its annual net sales guidance to $8.2 billion and estimates capital expenditure of $24 million. The stock has consensus buy rating of 75% and is likely to return 28% in the next one year. It is trading at 14.1 times its estimated 2011 earnings.

4. Winn-Dixie Stores ( WINN) is a U.S.-based food retailer.

During the fourth quarter of fiscal 2011, adjusted EBITDA of $38.3 million met the company's previous guidance. Adjusted EBITDA for fiscal 2011 was $114 million. Identical-store sales grew 3.2% in the fourth quarter and transformational format stores generated better sales. The company has liquidity of $553.7 million, comprised of $207.8 million of cash and cash equivalents.

Peter Lynch, the company's CEO, said, "We continue to grow sales through initiatives and customer loyalty programs such as our fuelperks Rewards program and transformational remodels. Through the first two fiscal periods of the new year, this momentum has resulted in identical store sales growth in excess of three percent."

The company expects adjusted EBITDA for fiscal 2012 to be in the range of $120 million to $135 million. Management expects capital expenditure for fiscal 2012 at around $200 million. Of the seven analysts tracking the stock, three rate it a buy and three maintain a hold. The stock has an estimated upside of 28%, according to analysts polled by Bloomberg.

3. Vitacost.com ( VITC) is an online retailer and direct marketer of health and wellness products.

During the second quarter of 2011, sales of third-party products boosted net sales 22.1% year-over-year to $65.9 million. During the quarter, the company added 0.16 million new customers, bringing total active customers to 1.2 million as of June 2011. The company would focus on expanding its customer base and product offerings to boost sales for the rest of the year.

"We are making progress on our initiatives to drive the top-line as we look to grow sales at a faster pace in order to leverage our fixed cost structure," said Jeffrey J. Horowitz, the company's CEO. Gross profit was $14.5 million, up 3.6% year-over-year. Vitacost had cash and cash equivalents of $16.3 million

The company has consensus buy rating of 33% and 48% upside in the next one year.

2. The Pantry ( PTRY) operates a convenience retail store chain in the Southeast U.S.

Net income during the third quarter of fiscal 2011 was $19 million, an increase of $1 million over last year's third quarter. Adjusted EBITDA was $84.7 million.

On the business performance, Terrance M. Marks, The Pantry's CEO, said, "We were able to deliver $84.7 million of Adjusted EBITDA in the third quarter, despite higher retail gas prices and a challenging employment picture across many of our key markets. While top-line results were soft, we did see improving traffic trends in June as a result of our Salute Our Troops campaign. Importantly, we continued rolling out our Fresh concept and are encouraged by the foodservice growth we experienced in completed stores. "

Merchandise gross margin was 34%, vs. 34.2% a year ago. Cash flow from operations was $96.6 million, an increase of $13.2 million from the year-ago quarter. Net debt was $1.03 billion, a decrease of $75 million from the end of second quarter fiscal 2011.

With analyst buy rating of 57% and upside potential of 59%, the stock looks a good bet over the next one year. It is trading at 13.1 times its estimated 2011 earnings.

1. Nash-Finch Company ( NAFC) is a wholesale food distributor in the U.S. and operates in segments such as food distribution, military food distribution and retail.

For the second quarter of 2011, EBITDA increased 4.5% to $33.4 million or 3% of sales, vs. $31.9 million or 2.8% of sales in the prior-year quarter.

The company's operating cash flow stands at $37.5 million and it has $0.66 million in cash and cash equivalents.

The company's operating performance has improved during the last five years. Consolidated EBITDA margin improved from 2.2% in fiscal 2006 to 2.9% of sales in the second quarter of 2011 and the debt leverage ratio improved from 3.11x to 2.28x. Of the four analysts covering the stock, two rate it a buy and two suggest hold, according to a Bloomberg consensus. Analysts expect the stock to deliver 67% in the next one year. It is trading at 8.5 times its estimated 2011 earnings.

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