Amidst uncertainties fueled by high inflation and fears of an economic downturn, investors are treading cautiously in the current market climate. The risk of a potential recession looms larger, driven by inflation and elevated interest rates.
Amid this backdrop, investors could look to buy fundamentally strong value stocks GSK plc (GSK), Expedia Group, Inc. (EXPE), and Albertsons Companies, Inc. (ACI), for their discounted valuations and strong fundamentals, making them appealing options for bargain hunters.
The consumer price index increased 3.3% from a year ago. The Fed is expected to keep interest rates high to combat stubborn inflation, which remains above its 2% target despite significant reductions. This prolonged period of high rates intended to reduce inflation, risks slowing economic growth and potentially causing a recession.
On the contrary, the WEF's latest report is cautiously optimistic about the global economy, despite geopolitical and political challenges. Nearly 70% of economists predict a return to 4% global growth in five years, and only 17% expect worsening macroeconomic conditions this year.
Moreover, the World Bank has raised its 2024 global growth forecast due to strong U.S. economic performance, predicting a stable growth rate of 2.6%. However, it warns that global output will remain below pre-pandemic levels through 2026, with persistent high interest rates, slowing growth and increasing debt pressure on emerging markets.
Furthermore, factors like inflation and global repercussions from conflicts in Gaza and Ukraine add to the uncertain outlook. Considering these trends, let’s assess the fundamentals of the abovementioned value stocks.
GSK plc (GSK)
Headquartered in Brentford, United Kingdom, GSK operates in the research, development, and manufacturing of vaccines and specialty medicines in the United Kingdom, the U.S., and internationally. The company operates through four segments: Pharmaceuticals, Pharmaceuticals R&D, Vaccines, and Consumer Healthcare.
On June 7, 2024, GSK announced that the US FDA approved their RSV vaccine, Arexvy, for adults aged 50-59 at increased risk of severe RSV outcomes. Previously approved for those aged 60 and older, the vaccine aims to prevent RSV lower respiratory tract disease in this newly expanded age group. This approval marks a significant milestone in the fight against RSV, as there are currently no other vaccines available to prevent this respiratory virus.
On June 6, 2024, GSK announced the acquisition of Elsie Biotechnologies to accelerate its oligonucleotide platform and pipeline medicines, aiming to address hard-to-treat diseases with high unmet needs. This acquisition, valued at up to $50 million, enhances GSK's R&D capabilities in oligonucleotide therapeutics. This strategic move demonstrates GSK's commitment to innovation and advancing cutting-edge treatments for patients.
In terms of forward non-GAAP P/E, GSK’s 10.16x is 48% lower than the 19.52x industry average. Its 1.34x forward non-GAAP PEG is 28.5% lower than the 1.88x industry average. Similarly, its 7.44x forward EV/EBITDA is 42.4% lower than the 12.91x industry average.
GSK has paid dividends for 22 years. Its annual dividend is $1.48, which translates to a yield of 3.61% at the current share price. Its four-year average dividend yield is 4.81%.
During the fiscal first quarter that ended March 31, 2024, GSK’s turnover and core gross profit increased 5.9% and 8.3% from the year-ago value to £7.36 billion ($9.37 billion) and £5.63 billion ($7.17 billion), respectively.
For the same quarter, the company’s core profit attributable to shareholders amounted to £1.75 billion ($2.23 billion), up 17.1% over the prior-year quarter. Furthermore, its core earnings per share grew 16.5% year-over-year to 43.10p.
Street expects GSK’s revenue for the quarter ending June 30, 2024, to increase 3.1% year-over-year to $9.58 billion. Its EPS for the quarter ending September 30, 2024, is expected to grow 1.2% year-over-year to $1.24. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 18.1% to close the last trading session at $41.06.
GSK’s POWR Ratings reflect robust prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #4 out of 154 stocks in the Medical - Pharmaceuticals industry. It has an A grade for Value and a B for Sentiment and Quality. Click here to see GSK’s Growth, Momentum, and Stability ratings.
Expedia Group, Inc. (EXPE)
EXPE operates as an online travel company in the U.S. and internationally. The company operates through B2C, B2B, and trivago segments.
On May 28, 2024, EXPE announced a partnership with Cathay to refresh Cathay Holidays, creating a one-stop travel hub for premium experiences. This new platform, powered by EXPE, enables seamless booking of hotel stays, packages, and travel activities. It was initially available in Hong Kong, Japan, and Singapore.
In terms of forward EV/EBITDA, EXPE’s 6.17x is 36.9% lower than the 9.77x industry average. Likewise, its 10.39x forward non-GAAP P/E is 34.6% lower than the 15.88x industry average. Also, its 11.47x forward EV/EBIT is 17.9% lower than the 13.96x industry average.
EXPE’s revenue for the fiscal first quarter that ended March 31, 2024, grew 8.4% year-over-year to $2.89 billion. Its adjusted EBITDA rose 37.8% from the year-ago quarter to $255 million.
EXPE’s adjusted net income attributable to EXPE and earnings per share stood at $29 million and $0.21, compared to an adjusted net loss attributable to EXPE and loss per share of $30 million and $0.21 in the prior-year quarter, respectively.
For the quarter ending June 30, 2024, EXPE’s EPS and revenue are expected to increase 9.2% and 5.2% year-over-year to $3.16 and $3.53 billion, respectively. EXPE surpassed the consensus revenue estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 13.2% to close the last trading session at $122.79.
EXPE’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value. Within the B-rated Internet industry, it is ranked #9 out of 51 stocks. To access the additional POWR Ratings of EXPE for Growth, Momentum, Stability, and Sentiment, click here.
Albertsons Companies, Inc. (ACI)
Albertsons Companies, Inc. ACI engages in the operation of grocery and drug stores. Its food and drug retail stores offer grocery items, everyday items, health and beauty care items, pharmacy supplies, fuel, and other goods and services. In addition, it creates and refines food products for retail sale.
On April 22, 2024, ACI and Kroger Co. (KR) announced an updated divestiture plan with C&S Wholesale Grocers, expanding the sale of stores and facilities to address regulatory concerns. The revised plan adds 166 stores, ensuring no closures and maintaining employment, as part of their proposed merger.
This divestiture plan aims to alleviate antitrust concerns and gain regulatory approval for the merger between ACI and Kroger Co. The addition of 166 stores to the sale will help maintain competition in the grocery industry and benefit consumers.
In terms of forward EV/Sales, ACI’s 0.32x is 80.8% lower than the 1.67x industry average. Its 11.29x forward EV/EBIT is 23% lower than the 14.67x industry average. Likewise, its 9.46x forward non-GAAP P/E is 49.5% lower than the 18.72x industry average.
ACI’s annualized dividend of $0.48 per share translates to a dividend yield of 2.36% on the current share price. Its four-year average yield is 9.98%. Over the past three ACI’s dividend payments have grown at CAGRs of 16.7%. ACI has paid dividends for three consecutive years.
ACI’s net sales and other revenue for the fourth quarter that ended February 25, 2024, increased marginally year-over-year to $18.34 billion. Its gross margin rose 1.2% over the prior-year quarter to $5.14 billion. Moreover, its adjusted net income and adjusted net income per Class A common share stood at $318 million and $0.54, respectively.
Analysts expect ACI’s revenue for the quarter ended May 31, 2023, to increase marginally year-over-year to $24.13 billion. Its EPS for fiscal 2026 is expected to rise 2.8% year-over-year to $2.58. It surpassed the revenue estimates in three of the trailing four quarters. Shares of ACI has gained marginally intraday to close the last trading session at $20.31.
ACI’s POWR Ratings reflect this positive outlook. ACI has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Value and a B for Quality. Within the A-rated Grocery/Big Box Retailers sector, it is ranked #21 out of 36 stocks. To see ACI’s Growth, Momentum, Stability, and Sentiment ratings, click here.
What To Do Next?
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GSK shares were trading at $41.19 per share on Wednesday afternoon, up $0.13 (+0.32%). Year-to-date, GSK has gained 13.12%, versus a 14.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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