On Monday, Telsey Advisory Group maintained its Outperform rating on Kroger Co (NYSE:KR) with a steady price target of $62.00. The firm anticipates Kroger to report first-quarter sales in line with expectations, excluding fuel, at 0.0% and a slight dip in earnings per share (EPS) to $1.30, compared to the FactSet consensus of $1.34.
This forecast reflects a mixed consumer spending environment, slower unit recovery, and price deflation in certain categories, which may be partially balanced by Kroger's strategic initiatives.
Kroger's strategic focus on freshness, digital capabilities, and customer loyalty is expected to offset the broader industry trend of moderating food sales. U.S. Census Bureau data showed a fluctuation in Food & Beverage Stores retail sales with a 3.8% increase in February, a 3.2% rise in March, followed by a 0.9% decrease in April. Additionally, the Food-At-Home Consumer Price Index (CPI) saw a steady climb from February through May, with a slight decrease to 1.0% in the latter month.
Comparative data from other retailers in the sector show a variety of performance outcomes, with Albertsons (NYSE:ACI) reporting a 1.0% increase in fourth-quarter sales in 2023, while Grocery Outlet saw a 3.9% rise in the first quarter of 2024. Publix also experienced a 2.8% increase in the same period, which included a 1.0% benefit from the shift of Easter, and Walmart (NYSE:WMT)'s U.S. grocery segment reported mid-single-digit growth with its health & wellness category experiencing high-single-digit increases.
Kroger is expected to continue benefiting from its "Leading with Fresh and Accelerating with Digital" strategy. The company aims to grow and gain market share by entering new regions, enhancing product offerings, improving digital interactions, and fostering customer loyalty. The transition to a food-first business model is anticipated to open up new avenues for profitability, particularly in personal finance and advertising/media, which are expected to significantly enhance Kroger's profit profile over time.
The price target set by Telsey is based on an enterprise value to EBITDA (EV/EBITDA) multiple of approximately 7.0 times the firm's 2024 EBITDA estimate of around $7.8 billion.
In other recent news, Kroger Co. has been making strategic moves in the food retail sector, as indicated by its proposed merger with Albertsons Companies Inc., which has been revised to include the sale of an additional 166 stores to C&S Wholesale Grocers. This move is to address antitrust concerns and is part of an ongoing process to secure regulatory approval for the merger.
Meanwhile, Kroger's earnings per share (EPS) guidance for 2024 stands at $4.40 at the midpoint, with the potential to surpass $5 in 2025, provided EBIT growth resumes and the share repurchase is executed. Revenue projections also reflect a stable trajectory, with $150,039M expected for 2024.
Analysts from Wells Fargo (NYSE:WFC) have upgraded Kroger's stock to Overweight and raised the price target to $65.00, indicating renewed confidence in the company's market position and potential for growth. On the other hand, Telsey Advisory Group has increased Kroger's price target from $60 to $62 while maintaining an Outperform rating, reflecting confidence in the company's strategic initiatives and growth prospects.
These recent developments demonstrate Kroger's strategic positioning in the food retail market, focusing on alternative revenue streams, potential share repurchases, and a keen eye on market dynamics. The company's management has been credited for its adept handling of industry headwinds and its strategic response includes an emphasis on improved pricing, promotional dynamics, and an aggressive share repurchase approach.
InvestingPro Insights
As Kroger Co (NYSE:KR) continues to navigate the complex retail landscape, real-time data from InvestingPro provides a deeper financial perspective on the company's performance. With a market capitalization of $36.36 billion and a price-to-earnings (P/E) ratio standing at 16.85, Kroger's valuation reflects its standing as a prominent player in the Consumer Staples Distribution & Retail industry. The company has demonstrated a commitment to shareholder returns, having raised its dividend for 18 consecutive years. This is indicative of Kroger's financial stability and its ability to maintain consistent dividend payments, a trend that is expected to continue into the current year.
InvestingPro Tips also highlight that Kroger's stock generally trades with low price volatility, which could appeal to investors seeking stable investments in the current economic climate. Furthermore, the company's dividend yield of 2.3% coupled with a dividend growth of 11.54% in the last twelve months underscores its attractiveness to income-focused investors. For those considering adding KR to their portfolio, it's worth noting that there are over 8 additional InvestingPro Tips available at https://www.investing.com/pro/KR, providing more in-depth analysis and guidance. To access these valuable insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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