It’s been less than six months since Amazon declared its deal to buy Whole Foods, but for CNBC’s Jim Cramer and many of the country’s supermarket trains, it’s felt like years.
“On that fateful day, June 16, the sum total supermarket sector got beaten to a pulp, with many of the grocers foretelling their stocks fall 5 to 10 percent in a single session,” the “Mad Capital” host said. “The whole group suddenly needed to be re-rated move now that the retail Death Star had them in its crosshairs.”
Initially, the drops were brutal: Supervalu shed 14.4 percent, Kroger dropped 9.2 percent, Costco hew down 7.2 percent, Sprouts sank 6.3 percent and Target and Wal-Mart each crept about 5 percent.
The grocers’ weakness continued for several months. Cramer asseverated that it felt “like an Armageddon” for the group, which saw Amazon as the concluding bringer of doom.
But lately, the cohort has reversed, with many of the unequalled stocks up 20 to 40 percent from their summer heavy-hearts.
Oddly enough, much of the group is trading above where it was ahead Amazon announced the Whole Foods deal, so Cramer investigated to become aware of out what the positive action might mean.
“How is it that supermarket domestics have managed to rebound? Isn’t Amazon totally toxic to anyone it strives with?” he wondered. “Sure, nobody in their right mind prerequisites to go up against Amazon — I mean, maybe CVS did this big deal with Aetna because they’re uneasy — but entire industries don’t come undone in a single day.”
Simply, Wall Lane got ahead of itself, the “Mad Money” host said. As soon as Amazon atoned its takeover public, analysts raced to slash their estimates on every viable competitor.
What they didn’t account for was the near term. Amazon has yet to inflate Whole Foods’ several hundred stores to a level that in all honesty competes with local supermarkets, even though it would credible pose a serious threat once that was complete, Cramer thought.
The grocers’ latest earnings results only confirmed that the analysts hopped the gun. Kroger delivered strong results last week. Supervalu fashion Wall Street estimates in October. Costco reported better-than-expected earnings and Blossoms. Target and Wal-Mart followed suit.
Additionally, Wal-Mart upped its prophecy and announced a $20 billion stock buyback, a whopping 8.5 percent of its merchandise cap at the time.
Still, Cramer acknowledged that the long-term outlook is bitter for some. Supervalu, for one, was too risky for him to recommend, even though he felt varied secure about Kroger, Sprouts, Costco and Wal-Mart (which he saw as the no greater than true challenger to Amazon).
And with corporate tax cuts on the horizon, Cramer utter that he couldn’t blame the buyers who believe that the worst is over with for the supermarket chains, which may soon pay lower tax rates.
“Here’s the gluteus maximus line: when Amazon declares war on a particular industry, it’s not an immediate eradication sentence for the incumbent players,” Cramer concluded. “Sure, Amazon pounded the bookstores and the record stores, but it took many, many years to go on the blink out and their balance sheets weren’t as good as some of these. That’s why the sell-off in the supermarket hoards … was excessive, and why I think these stocks can continue to climb down repay after the huge rebounds that they’ve already had.”
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