America’s largest grocery retailer, the Kroger Co. (KR), which is based in Cincinnati, Ohio operates approximately 2,800 owned or leased supermarkets, distribution warehouses, and food production plants through divisions, subsidiaries, or affiliates. 

The stock has surged 49.6% in price over the past year and 18.4% over the past three months closing yesterday’s trading session at $47.14.

Despite ongoing labor and supply chain challenges, the company delivered solid earnings and sales growth in its last reported quarter. In addition, KR raised its full-year guidance, driven by its key growth initiatives, including its digital selling channel and its in-store grocery brands. It expects a two-year identical sales stack to be in the range of 13.7% – 13.9% and adjusted net earnings per diluted share to be in the range of $3.40 – $3.50.

Here is what could shape KR’s performance in the near term:

Positive Developments

This month, with the debut of Nuro’s third-generation autonomous delivery vehicle, KR and Nuro announced an expanded collaboration to further revolutionize the customer experience with autonomous cars. KR will expand its digital services in Houston, one of the largest cities in the United States, by leveraging Nuro’s new third-generation cars, demonstrating its dedication to anything, anytime, anywhere.

Last month, KR announced an expansion of its Kroger fulfillment network. The installation of a delivery “spoke” brings innovation and modern e-commerce to the Indianapolis area, increasing the grocer’s reach and ability to supply its customers with anything, anytime, anywhere.

Share Repurchase

Last month, KR’s board of directors approved a new $1 billion share repurchase program, replacing the existing authorization, which had approximately $157 million remaining  as of Dec. 29, 2021. KR’s share repurchase authorization reflects the company’s robust free cash flow and ability to produce strong and attractive total shareholder returns consistently.

Strong Financials

During the third quarter, ended Nov. 06, 2021, KR’s net sales increased 7.2% year-over-year to $31.86 billion. Its operating income increased 9.6% from its year-ago value to $868 million. KR reported $483 million in net income, while its EPS amounted to $0.64 over this period. In addition, its cash and cash equivalents were $324 million for the nine months ended Nov. 06, 2021.

Discounted Valuation

In terms of forward non-GAAP P/E, the stock is currently trading at 13.67x, which is 30% lower than the 19.52x industry average. Also, its 0.40x forward EV/Sales is 80.2% lower than the 2.01x industry average. Moreover, KR’s 0.26x forward Price/Sales is 81.5% lower than the 1.39x industry average.

POWR Ratings Reflect Solid Prospects

KR has an overall B grade, which equates to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. KR has an A grade for Growth and a B for Value. KR’s solid earnings and revenue growth is consistent with its growth grade. And the company’s lower-than-industry valuation is in sync with the Value grade.

Of 39 stocks in the A-rated Grocery/Big Box Retailers industry, KR is ranked #11.

Beyond what is stated above, we have graded KR for Stability, Sentiment, and Momentum. Get all KR ratings here.

Bottom Line

KR reported revenue growth across all major segments in its last reported quarter. It surpassed revenue and EPS estimates in the quarter and increased its guidance for its fiscal 2021. In addition, Analysts expect its EPS to grow at the rate of 6.6% per annum over the next five years. So, we think it could be wise to add the stock to one’s portfolio now.

How Does the Kroger Co. (KR) Stack Up Against its Peers?

KR has an overall POWR Rating of B, which equates to a Buy rating.  Check out these other stocks within the Grocery/Big Box Retailers industry with A (Strong Buy) ratings: Albertsons Companies, Inc. (ACI), Natural Grocers by Vitamin Cottage, Inc. (NGVC), and Walmart Inc. (WMT).

KR shares were trading at $47.90 per share on Thursday morning, up $0.76 (+1.61%). Year-to-date, KR has gained 5.83%, versus a -0.60% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

More Resources for the Stocks in this Article