Renowned retailer The Kroger Co. (KR) operates combination food and drug stores, multi-department stores, marketplace stores, and price impact warehouses.

The company’s sales and EPS topped analyst estimates for the fiscal third quarter. Its revenue came in at $34.2 billion, beating the consensus estimate of $33.92 billion. Moreover, its adjusted EPS of 88 cents for the same period surpassed the consensus estimate by 7.3%.

The company also raised its full-year 2022 guidance. KR expects adjusted net earnings per share to be in the range of $4.05 to $4.15 and free cash flow in the range of $2.30 – $2.50 billion. 

KR’s stock has declined 3.9% year-to-date to close its last trading session at $43.49.

Here are the factors that could influence KR’s performance in the near term:

Solid Financials

For the fiscal third quarter of 2022, KR’s sales increased 7.3% year-over-year to $34.20 billion. Adjusted net earnings attributable to KR rose 9.2% from the prior-year quarter to $643 million. Its adjusted EPS came in at $0.88, up 12.8% from the same period last year.

Cheap Valuation

In terms of its forward non-GAAP PEG, KR is trading at 0.99x, 63.4% lower than the industry average of 2.70x. The stock’s forward EV/Sales multiple of 0.35 is 79.8% lower than the industry average of 1.71. In terms of forward Price/Sales, it is trading at 0.22x, 81.2% lower than the industry average of 1.15x.

Favorable Analyst Expectations

The consensus EPS estimate of $1.46 for the fiscal quarter ending April 2023 indicates a marginal year-over-year increase. Likewise, analysts expect its EPS to improve 12.2% from the prior year to $4.13 in the current year (fiscal 2023).

Street revenue estimate for the current year of $148.31 billion indicates a rise of 7.6% from the prior year. Moreover, KR’s EPS is expected to increase 11.7% per annum over the next five years.

Attractive Dividend

On September 15, KR declared a quarterly dividend of 26 cents per share, which was payable to shareholders on December 1, 2022. Its annual dividend of $1.04 yields 2.39% on the current share price.

The company’s payouts have increased at a 16.1% CAGR over the past three years and a 13.9% CAGR over the past five years. It has a record of 16 consecutive years of dividend growth.

POWR Ratings Reflect Promising Prospects

KR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. KR has a Value grade of B, in sync with its lower-than-industry valuation multiples.

The stock also has a B grade for Quality, consistent with its higher-than-industry profitability. Its trailing-12-month ROCE, ROTC, and ROTA of 24%, 9.38%, and 4.72% are 126.6%, 51.8%, and 21.5% higher than the respective industry averages of 10.59%, 6.18%, and 3.88%.

In the 39-stock Grocery/Big Box Retailers industry, it is ranked #10. The industry is rated A.

Click here to see the additional POWR Ratings for KR (Growth, Momentum, Stability, and Sentiment).

View all the top stocks in the Grocery/Big Box Retailers industry here.

Bottom Line

Despite macroeconomic uncertainties, KR topped analyst estimates and raised its full-year guidance. In addition, the defensive nature of KR’s business and its steady dividend growth make the stock an attractive pick now.

How Does The Kroger Co. (KR) Stack up Against Its Peers?

While KR has an overall POWR Rating of A, one might consider looking at its industry peers, Ingles Markets, Incorporated (IMKTA) and Village Super Market, Inc. (VLGEA), which also have an overall A (Strong Buy) rating.

KR shares fell $0.14 (-0.32%) in premarket trading Friday. Year-to-date, KR has declined -2.02%, versus a -17.02% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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