Village Super Markets (NASDAQ:VLGEA) ; High-Yield Microcap Under The Radar

Village Super Market, Don’t Discount The Small Guy

Small and mid-sized businesses have been one of the harder hit demographics regarding the pandemic but that doesn’t mean all small and mid-cap stocks are in peril. There are a number of sectors and industries buoyed by the pandemic and within them all are small and mid-cap names that are doing just fine. Today’s calendar Q3 earnings report from Village Super Markets (NASDAQ:VLGEA) highlights just such a company and one with a remarkably high yield. With shares trading near $24, this stock yields over 4.0%, and the payout looks as healthy as it can be.

Business At Village Super Markets Is Accelerating

Village Super Markets is a grocery store so it makes sense to expect the business saw a boost from the pandemic. Larger competitors like Kroger (NYSE:KR), BJ’s Wholesale Club (NYSE:BJ), and even Ingles Markets Inc (NASDAQ:IMKTA) have seen sustained increases in revenue so there is a precedent. What is surprising about Village Super Markets is that revenues are accelerating. Revenue in the fiscal 4th quarter, calendar Q3, came in at $501.48 million or up 20% on a YOY basis. This is compared to $458 in the previous quarter, a gain of only 16% YOY, but there are some adjustments to consider.

Adjustments include a number of acquisitions including the recent purchase of Fairway Market assets. That purchase includes four stores in the NYC area and a distribution center. Along with that are the reopening of a store in Stroudsberg and the Gourmet Garage acquisition completed in the 4th quarter of last year. Backing those out of the equation the company saw comps increase 7.5% which is still pretty good.

Moving down, GAAP EPS came in at $0.63 or up 34% on a YOY basis. After adjustments, which include insurance payments related to Superstorm Sandy, tax benefits, and acquisition expenses EPS fell slightly on a YOY basis. The takeaway here is that earnings including the one-time acquisition costs would have grown on a YOY basis. Looking forward, revenue and earnings growth should be sticky and the one-time costs will no longer be an issue.

Village Super Market Pays A Healthy Dividend

When I say that Village Super Market pays a healthy dividend I mean it is substantially large at 4.0% and the payment appears safe. This company is not a dividend grower but it has a long history of payments, cash-flow, and a well-managed balance sheet to back it up. Regarding the balance sheet, the company is well-capitalized, carries a low amount of debt, and its obligations are well-covered. Free-cash flow is a bit limited but that can be chalked up to the dividend. Over the past 12 months, the company has paid out nearly 60% of its earnings to shareholders. The stock just went ex-dividend a week or two ago so it will be another quarter until the next payment.

The Technical Outlook: There’s A Bottom In-Play

Shares of Village Supermarket have made a stunning recovery from the March lows but the most recent price action is bearish. The stock retreated from the July high to form what now looks like a new support level at $24. Price action is tracing out a possible double-bottom at this level and it is confirmed by the indicators.

Both indicators are showing bullish crossovers that may amount to a strong buy signal. The Q4 report has shares moving higher in the early action, if they are able to continue higher and close above the $25 level further upside is likely. At that point, the next target is $28 or a 12% upside. In the bear case, the $24 is a very key level for the market. If the bears push the stock below that level even the 4% yield may not save it from a deeper decline.