Weis Markets (NYSE: WMK)
QVI Research Report | Updated Coverage | July 2023
Summary
By utilizing local farmers and its own centrally-located distribution centers and transportation fleet, Weis Markets self-distributes approximately 67% of the products sold in its stores.
QVI added the stock to the Expanded Portfolio in 2018 for its high-quality, family-owned business model, zero debt, and discounted stock price.
Nonetheless, Weis Markets lacks an economic moat, and short interest on its share float remains elevated.
However, QVI maintains its view on the regional food retailer and its stock in this updated research report.
When referencing this report, premium (paying) subscribers can access their Quality Value Investing (QVI) Glossary of Investing Terms and Metric Targets. Unless noted, all data presented is sourced from Seeking Alpha Premium as of the intraday market on July 24, 2023, and intended for illustration only. If reading this in your email, consider viewing in the Substack App for a more inclusive experience.
Weis Markets Value Proposition
QVI Research Report’s value proposition section provides a brief synopsis of the company’s business model, major-exchange listing, stock symbol, market capitalization, and dividend-paying status. In addition, it defines the competitive advantages of a company’s products or services to its customers compared to the industry, including the stock’s historical performance vs. the sector and market.
Weis Markets, Inc. WMK 0.00%↑ is a dividend-paying small-cap stock in the consumer staples sector’s food retail industry. WMK was added to the QVI Expanded Portfolio on March 22, 2018, at a dividend- and split-adjusted $34.88 a share.
Weis Markets, Inc. engages in the retail sale of food through a chain of supermarkets in Pennsylvania and surrounding states. The company's retail food stores sell groceries, dairy products, frozen foods, meats, seafood, fresh produce, floral, pharmacy services, deli products, prepared foods, bakery products, beer and wine, and fuel; and general merchandise items, such as health and beauty care, and household products. It operates stores in Delaware, Maryland, New Jersey, New York, Pennsylvania, Virginia, and West Virginia, primarily under the Weis Markets name, as well as Weis, Weis 2 Go, Weis Great Meals Start Here, Weis Gas-n-Go, and Weis Nutri-Facts. The company was founded in 1912 and is based in Sunbury, Pennsylvania, USA.
QVI’s value proposition elevator pitch for Weis Markets:
Weis Markets processes its own milk and famous ice cream and supports local farmers. By utilizing its own centrally-located distribution centers and transportation fleet, the company self-distributes approximately 67% of the products sold in its stores.
Performance vs. Sector and Market
The chart below illustrates WMK’s performance against the Consumer Staples Select Sector SPDR® Fund ETF (NYSE: XLP) and the SPDR® S&P 500 ETF Trust (NYSE: SPY) since QVI’s initial coverage of Weis Markets in March 2018.
For example, WMK outperformed its sector while matching the broader market in total return during the coverage timeframe.
Due Diligence Resources
For a more in-depth analysis of the all-important value proposition, visit Weis Markets’ investor relations webpage and its most recent Form 10-K Annual Report submitted to the US Securities and Exchange Commission or SEC.
QVI’s value proposition rating for Weis Markets: Bullish.
WMK Total Returns vs. XLP and SPY
Weis Markets Inc (WMK) Total Return: 87.35%
Consumer Staples Sel Sec SPDR ETF (XLP) TR: 69.10%
SPDR S&P 500 ETF Trust (SPY) Total Return: 87.58%
Since March 22, 2018 (as of July 24, 2023)WMK Shareholder Yields
QVI Research Report’s shareholder yields section uncovers the equity bond rate of the company’s common shares. It aims to quantify the yields on earnings, free cash flow, and dividends to measure how the targeted stock compares to the prevailing yield on the 10-Year Treasury benchmark note.
Earnings and Free Cash Flow Yields
WMK’s earnings yield traded above the QVI targeted floor at 6.61%, as demonstrated in the below chart. However, at 3.84%, WMK’s free cash flow yield was under the threshold.
As inverse valuation multiples, the weighted earnings and free cash flow yields suggest that WMK was trading at fair value. QVI will further explore valuation multiples later in this report.
Dividend Yield
Weis Markets offers a modest forward dividend yield of 1.51%, supported by an otherwise conservative 30.01% payout ratio, thus indicating a dividend rate with room for additional annual increases.
WMK yielded 3.90% from an annual payout of $1.36 on a split- and dividend-adjusted cost basis of $34.88 per share on March 22, 2018, the date of QVI’s initial stock coverage. Thus, our yield-on-cost basis was +239 basis points (bps) above the forward yield.
Average of Shareholder Yields
Quality Value Investing takes the average of the three shareholder yields to measure how the stock compares to the prevailing yield of 3.85% on the 10-Year Treasury benchmark note. For example, the average shareholder yield for WMK was 3.99% or +14 bps above the 10-Year and 4.78% or +93 bps above the Treasury yield when using QVI’s March 2018 yield-on-cost basis.
QVI’s shareholder yields rating for WMK: Bullish.
WMK Shareholder Yields
Weis Markets Inc (WMK) Price: $67.35
Weis Markets Inc (WMK) Earnings Yield: 6.61%
Weis Markets Inc (WMK) Free Cash Flow Yield: 3.84%
Weis Markets Inc (WMK) Dividend Yield: 1.51%
One-Year Trailing (as of July 24, 2023)Weis Markets Fundamentals
QVI Research Report’s fundamentals section measures the performance strength of the company’s senior management by analyzing revenue growth, net profit margin, and returns on equity and invested capital.
Revenue Growth and Net Profit Margin
Per the chart below, Weis Markets had three-year annualized high-single-digit revenue growth of 9.84%, in line with the 8.89% median growth of the consumer staples sector.
Farther down the income statement, Weis Markets had a trailing three-year low-single-digit net profit margin of 2.66%, in line with the sector’s median net margin of 3.16%.
Returns on Equity and Invested Capital
Weis Markets’ management produced a trailing three-year return on equity or ROE of 9.61%, under the targeted threshold but in line with the sector’s median ROE of 10.17%.
Also at 9.61%, Weis Markets’ three-year return on invested capital, or ROIC, was below the QVI threshold but bested the sector’s median ROIC of 6.29%, indicating that its senior executives are above-average capital allocators.
Moreover, Weis Markets’ ROIC covered its weighted average cost of capital, or WACC, of 6.76%. (Source of WACC: GuruFocus).
With solid revenue growth for a food retailer along with sector-competitive net profit margins and returns on equity and capital, Weis Markets’ management continues its consistent, if merely adequate, performance in Sunbury.
QVI’s fundamentals rating for Weis Markets: Bullish.
WMK Returns On Management
Weis Markets Inc (WMK) Revenue (3 Year Growth): 9.84%
Weis Markets Inc (WMK) Profit Margin (3y Median): 2.66%
Weis Markets Inc (WMK) ROE (3y Median): 9.61%
Weis Markets Inc (WMK) ROIC (3y Median): 9.61%
Three-Year Trailing (as of July 24, 2023)WMK Valuation, Risks, and Investment Thesis
Next, QVI dives into the valuation multiples, downside risks, and overall investment thesis of Weis Markets, Inc. (WMK), including potential catalysts. So, let’s dig further after reading the required disclosures and background information.
Disclosure: I/we have no beneficial position through direct ownership of any stock mentioned in this report thus far. I wrote this report myself, and it expresses my own opinions. I am not receiving compensation for it other than from Substack paid subscriptions. I have no business relationship with any company whose stock is mentioned in this article.
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David J. Waldron is the contributing editor of Quality Value Investing, and author of the international-selling book Build Wealth with Common Stocks: Market-Beating Strategies for the Individual Investor. David’s mission is to inspire the achievement of his readers’ financial goals and dreams. He received a Bachelor of Science in business studies as a Garden State Scholar at Stockton University and completed The Practice of Management Program at Brown University.
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