05. The Kroger Co. (NYSE:KR)
Price Reaction after the Upgrade: +0.93(+1.82%)
On June 17, Telsey Advisory Group reaffirmed its Outperform rating on The Kroger Co. (NYSE:KR), maintaining a price target of $62.00. This decision reflects confidence in The Kroger Co. (NYSE:KR) strategic initiatives despite a mixed consumer spending environment. The Kroger Co. (NYSE:KR) strategic focus on freshness, digital capabilities, and customer loyalty is expected to counterbalance challenges such as slower unit recovery and price deflation in certain categories. The U.S. Census Bureau reported fluctuations in Food & Beverage Stores retail sales, with increases in February and March followed by a decrease in April, alongside a steady climb in the Food-At-Home Consumer Price Index (CPI) from February through May. The Kroger Co. (NYSE:KR) is expected to benefit from its “Leading with Fresh and Accelerating with Digital” strategy, aiming to expand market share by entering new regions, enhancing product offerings, improving digital interactions, and fostering customer loyalty. This transition to a food-first business model is anticipated to open new avenues for profitability, particularly in personal finance and advertising/media, which are expected to significantly enhance The Kroger Co. (NYSE:KR) profit profile over time.
In other developments, The Kroger Co. (NYSE:KR) has proposed a merger with Albertsons Companies Inc., which includes the sale of an additional 166 stores to C&S Wholesale Grocers to address antitrust concerns, as part of the ongoing process to secure regulatory approval for the merger. The Kroger Co. (NYSE:KR) earnings guidance for 2024 is set at $4.40 per share, with potential to exceed $5 in 2025, provided EBIT growth resumes and the share repurchase is executed. Revenue projections indicate a stable trajectory, with $150,039 million expected for 2024. Additionally, analysts from Wells Fargo have upgraded Kroger’s stock to Overweight and raised the price target to $65.00, reflecting renewed confidence in the company’s market position and growth potential. Following Telsey’s reaffirmation of its rating, The Kroger Co. (NYSE:KR) stock price increased by 1.82%, indicating a strong market response and confidence in the company’s strategic direction and growth prospects.
In its fourth quarter 2023 investor letter, Oakmark Global Fund stated the following regarding The Kroger Co. (NYSE:KR):
“The Kroger Co. (NYSE:KR) (U.S.) is the second-largest grocery retailer in America, behind only Walmart. Although the grocery industry is highly competitive, Kroger’s scale advantages allow it to offer a more compelling value proposition than smaller peers and earn higher returns on capital. In recent years, the market has assigned Kroger a lower multiple due to concerns that e-commerce would disrupt traditional brick-and-mortar grocery businesses. However, we believe Kroger’s performance through the pandemic highlighted that its store footprint, distribution infrastructure, technology investments and strong brand all position the company well for a world with higher online grocery adoption. The stock trades for just 10x our estimate of next year’s EPS, which we believe is attractive given Kroger’s competitive positioning and earnings growth outlook. The pending merger with Albertsons could accelerate the company’s earnings growth and produce additional scale advantages. If the merger is not approved, the company will have the capacity to return over 25% of its market cap to shareholders.”
