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$Koninklijke Ahold Delhaize N.V.(ADRNY)$ $Koninklijke Ahold Delhaize N.V.(AHODF)$ $KONINKLIJKE AHOLD DELHAIZE NV(0RI8.UK)$

Walmart is a popular consumer staples stock and has been a solid investment over the past few years. However, there is a lesser-known European company that I believe presents an even better opportunity—Ahold Delhaize. In fact, I’m already invested in them and have just increased my position. And before we go any further, I apologize in advance if I mispronounce the name throughout this video—it's not the easiest for my German tongue!

As of this recording, Ahold Delhaize holds a Seeking Alpha Quant rating of 4.9 out of 5, ranking as the #1 company in the consumer staples sector out of nearly 200 competitors and also the top food retailer. Interestingly, I had planned this video weeks ago to coincide with their annual report, and it was only during my detailed research that I discovered these impressive ratings—talk about good timing!

Today, I’ll take you through Ahold Delhaize’s business, review their latest financials, and compare them directly to Walmart to explain why I see them as a superior investment.

Earning Overview

Profit Margins & Operating Expenses

One of the key reasons is their profit margins and operating expenses as a percentage of sales. Looking at the orange lines in these graphs, Ahold Delhaize has a gross profit margin of 26.6%, while its operating expenses account for 24% of sales.

For Walmart, the gross profit margin—referred to here as the "gross profit rate"—is 21.6% internationally and 26.8% in the U.S. However, Walmart benefits from slightly lower operating expenses: 18.4% internationally and 22.1% in the U.S.

While Walmart generates nearly twice the absolute profit of Ahold Delhaize, allowing it to leverage economies of scale more effectively, this is precisely why I see an advantage for AD. Since AD is the smaller company, it has more room for growth, especially with its acquisition-driven expansion strategy. This gives it a greater potential to reduce costs and further improve margins over time.

Fundamental Analysis

Over the past 12 months, Ahold Delhaize has outperformed the S&P 500, delivering a 27% total return compared to the S&P’s 8.3%. They also more than doubled the performance of the Euro Stoxx 600 index, in which they are included. However, over a 10-year period, the S&P still managed to outperform Ahold Delhaize, with a 213% total return versus Ahold's 161%. That said, these are still strong numbers for a traditional consumer staples stock.

Now is also a great time to take a closer look at Ahold Delhaize, given the increasing market volatility and the rotation of funds from U.S. stocks into European equities, as well as from tech into more defensive stocks. But as Peter Lynch wisely said, "Behind every stock is a company," and to determine whether a company is a good investment, we first need to understand its business model and what sets it apart.

Business Model

Ahold Delhaize is one of the world’s largest food retail groups, headquartered in the Netherlands. It was formed in 2016 through the merger of Royal Ahold and Delhaize Group. The company operates in both Europe and the U.S. under various local brands, including Albert Heijn, Food Lion, Giant, and Hannaford.

As a consumer staples company, Ahold Delhaize offers a wide range of everyday products, including fresh and frozen foods, pet supplies, general merchandise, electronics, newspapers, tobacco, gasoline, beauty care, and even pharmacy products. While you may not have heard of Ahold Delhaize, if you live in one of their operating regions, you’re likely familiar with at least one of their brands.

Geographically, 60% of their revenue comes from the U.S., with the remaining 40% from Europe. Although they operate more stores in Europe than in the U.S., their strategy remains consistent across both markets. Their long-term growth plan is based on four key focus areas:

1. Innovating for growth

2. Leveraging their scale and reducing costs

3. Enhancing customer value by providing high-quality, affordable products across all sales channels

4. Expanding their market presence by optimizing their store portfolio and entering new territories

While these objectives may sound broad, their focus on customer value and technological innovation is what initially caught my attention—not just on paper but in real life. My first experience with their Dutch brand, Albert Heijn, was over 15 years ago in Amsterdam. Even back then, their shopping experience and use of technology were far ahead of some German retailers today.

A great example of this innovation is their use of machine learning to generate 50-day demand forecasts for every product in every store—amounting to over 1 billion predictions daily. This ensures that shelves are well-stocked while minimizing food waste.

As for market expansion, Ahold Delhaize recently acquired the Romanian brand Profi, effectively doubling their footprint in the country and accelerating growth in Eastern Europe.

Guidance

Another aspect that stands out is their strong focus on private-label products, which are tailored to local markets and sourced from local suppliers while still offering great value. Currently, private-label sales account for about one-third of their food sales in the U.S. and nearly half in Europe. Their goal is to increase this to 45% globally by 2028.

Additionally, Ahold Delhaize is committed to an omnichannel approach across all its brands, which it sees as a key competitive advantage. By integrating online services with physical stores, they leverage their vast retail network and partnerships with delivery services like DoorDash to meet rising demand for same-day delivery. This model contrasts with fulfillment-center strategies that primarily focus on next-day delivery, allowing Ahold Delhaize to drive steady sales growth—both overall and in their online segment.

While their U.S. e-commerce sales declined slightly last year due to an investment in FreshDirect, which had a nearly 7% negative impact, I still see Ahold Delhaize as a strong and highly innovative company—especially for a consumer staples stock.

That being said, Walmart is also a powerhouse in this space, and in the next section, I’ll break down how these two companies compare.

Free Cash Flow

Ahold Delhaize has demonstrated consistent free cash flow (FCF) generation in recent years, reflecting its robust financial performance. Here's an overview of the company's FCF figures and projections:​

Dividend

Both companies have demonstrated steady revenue and EBITDA growth, with noticeable jumps during acquisitions. Net income and EPS have also trended upward, despite some fluctuations, which is common in the consumer staples sector. Walmart follows a similar pattern.

However, the key metric for me as an investor is free cash flow (FCF). Like revenue and EBITDA, Ahold Delhaize’s FCF has shown a steady upward trend. The most recent data point, labeled as 2024, is actually from December 2023, making it the latest available figure.

For Walmart, things look different. While revenue and EBITDA have grown consistently, net income and EPS have been more volatile. But what’s particularly concerning is Walmart’s free cash flow, which has been quite erratic and has shown a declining trend in recent years.

Here’s a direct comparison:

• 5-Year Annual Revenue Growth:

  Ahold Delhaize: 6.2%

  Walmart: 5.4%

• 5-Year Annual Free Cash Flow Growth:

  Ahold Delhaize: +5.6%

  Walmart: -18.5%

That’s a striking difference.

The main reason behind Walmart’s declining free cash flow is a sharp increase in capital expenditures (CapEx), largely due to heavy investments in e-commerce platforms and supply chain enhancements to compete with other online retailers. Additionally, Walmart’s operating cash flow has been volatile and lacks a clear upward trend, unlike Ahold Delhaize, where the trajectory is much more stable.

As a result, Ahold Delhaize currently boasts an impressive free cash flow yield of nearly 9%, compared to Walmart’s 1.5%.

Looking at margins:

• EBIT Margin:

  Ahold Delhaize: 6.5%

  Walmart: 6.2%

• Return on Invested Capital (ROIC):

  Walmart: 13.8%

  Ahold Delhaize: 5.8%

While Walmart significantly outperforms AD in terms of ROIC, Ahold Delhaize shines in cash flow efficiency.

Debt & Share Buybacks

Both companies maintain solid balance sheets with reasonable debt-to-equity ratios, but Walmart holds the edge here:

• Debt-to-Equity Ratio:

  Walmart: 1.2x

  Ahold Delhaize: 2.2x

However, where Ahold Delhaize truly stands out is its aggressive share buyback program. While both companies repurchase shares, AD has done so four times faster over the past five years, with an annual share reduction of -4.1%.

They recently announced another €1 billion share buyback program, maintaining the same high level as last year. The fact that they’re able to fund these buybacks while simultaneously acquiring new brands and keeping debt levels under control speaks volumes about their strong cash flow management.

Dividends & Long-Term Investor Returns

Both companies also return value to shareholders through dividends:

• Dividend Yield:

  Ahold Delhaize: 3.4%

  Walmart: 1.1%

Notably, Walmart’s yield is already accounting for a 20% stock price decline, whereas Ahold Delhaize’s stock has remained relatively stable.

What’s even more impressive is Ahold Delhaize’s dividend growth rate, which has been three times faster than Walmart’s while maintaining a payout ratio that is only half of Walmart’s.

For long-term dividend investors focused on passive income, Ahold Delhaize would have been the superior choice. If you had invested in AD 10 years ago, your yield on cost today would be 6.3%, compared to only 3% for Walmart—still lower than AD’s current yield.

While Walmart recently announced a 133% increase in its dividend for the upcoming year, I still believe it will struggle to outpace Ahold Delhaize’s dividend growth, given its already high payout ratio.

Risks and Challenges

U.S. Market Performance The company's U.S. operations have experienced declining sales and profitability, partly due to price reductions aimed at attracting more shoppers. In the fourth quarter of 2024, U.S. sales decreased by 0.6% to €13.87 billion, and the operating margin fell from 5.2% to 4.2%.

Supply Chain and Tariff Implications Global trade policies, including U.S. import tariffs on products from countries like Mexico and Canada, have led to increased costs for goods such as food and paper products. Ahold Delhaize has indicated that these tariffs may result in higher prices for consumers, potentially affecting sales volumes.

Labor Relations The company has encountered labor disputes, notably with workers at its Stop & Shop brand. State treasurers have urged the company to negotiate in good faith with unions to prevent potential strikes, which could disrupt operations and impact financial performance.

Margin Pressures Despite reporting higher-than-expected sales, concerns about potential margin decreases persist. The company forecasts an operating margin of around 4.0%, slightly below historical guidance, prompting apprehension among investors about profitability. ​

Valuation

For Ahold Delhaize, the outlook is much more conservative. Based on 16 analysts, the projected one-year upside is just 3.8% above the current stock price. The reason becomes clear when we examine growth forecasts.

Valuation Concerns This is where my biggest concern lies. Walmart’s valuation is extremely high—2x to nearly 4x higher than Ahold Delhaize, depending on the metric:

• Price-to-Earnings (P/E): 32

• Enterprise Value to EBITDA (EV/EBITDA): 16.4

• Price-to-Cash Flow: ~19

• PEG Ratio: 3.7

Growth Projections (2024-2028) Ahold Delhaize: EPS Growth: 6.8% annually (nearly double its past five-year average) Revenue Growth: 2.5% annually (slightly lower than the past five years)

These numbers resemble high-growth tech stocks rather than a consumer staples giant. For comparison, Nvidia, a company growing revenue at over 100% per year, has lower valuation multiples than Walmart.

Meanwhile, Ahold Delhaize trades below the sector median, though as a Dutch company, its valuation is naturally lower than U.S. counterparts. Even so, compared to its own five-year history, AD’s valuation is already near the upper end of its range, meaning there’s limited room for multiple expansion.

Walmart, despite its recent stock drop, remains significantly overvalued relative to its own five-year historical averages.

Competitive Position & Moat

Strategically, both companies operate in highly competitive, price-sensitive markets. Walmart’s scale gives it stronger pricing power with suppliers, which is an advantage. However, as a grocery-focused retailer, Ahold Delhaize faces less risk of substitution than Walmart, which competes across a broader range of product categories beyond groceries.

Overall, both companies have a strong competitive moat, but their strengths and weaknesses differ slightly.

Market sentiment

Analyst Ratings & Price Targets

The average one-year price target from 16 analysts suggests a modest upside of 3.8%, indicating that expectations for explosive short-term growth are limited.

Unlike Walmart, which has a strong bullish consensus despite recent stock declines, Ahold Delhaize is seen as a steady, defensive play rather than a high-growth opportunity.

Institutional & Retail Investor Sentiment

Institutional investors appreciate AD for its strong cash flow generation, disciplined capital allocation, and shareholder-friendly policies (dividends & buybacks). Retail investors tend to overlook Ahold Delhaize in favor of more well-known U.S. retailers like Walmart or Costco, meaning it often trades at lower valuation multiples. The stock’s relatively low volatility makes it appealing for conservative, long-term investors seeking stability.

Undervalued Compared to Peers – European stocks generally trade at lower valuations than their U.S. counterparts, and AD is no exception. Despite solid earnings growth, strong margins, and high free cash flow, it is not priced aggressively.

Dividend & Buyback Strength – With a 3.4% dividend yield, strong dividend growth, and an aggressive share repurchase program, Ahold Delhaize provides consistent returns, which isn’t always reflected in short-term price action.

Conclusion

Ultimately, Ahold Delhaize’s higher cash flow efficiency, stronger dividend growth, and aggressive capital returns make it, in my opinion, the better long-term investment—especially for income-focused investors. After analyzing Ahold Delhaize. AD offers higher dividend yield and faster dividend growth. Ahold Delhaize is a true cash flow machine, consistently returning cash to shareholders through dividends and aggressive share buybacks.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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