The Kroger Co. (KR) functions as a retailer in the United States. The company operates combination food and drug stores, which offer natural food and organic sections, pharmacies, general merchandise, pet centers, fresh seafood, and organic produce, and multi-department stores providing apparel, home fashion and furnishings, outdoor living, electronics, automotive products, and toys.

KR’s Board of Directors recently approved a 24% dividend increase from $0.84 to $1.04 per year. Its dividend payouts have grown at 14.5% and 11.8% CAGRs over the past three and five years, respectively. Its four-year average dividend yield is 1.96%, while its forward annual dividend translates to a 2.16% yield.

KR’s first-quarter EPS increased 21.8%, beating analysts’ estimates by 11.5%. “Our business continues to generate strong and consistent free cash flow and has proven to be resilient in a variety of operating environments,” said Rodney McMullen, Kroger’s Chairman and CEO. The stock has gained 26.3% over the past year and 22.3% over the past nine months.

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

Latest Developments:

Recently, KR announced a 35,000 square-foot expansion at Tamarack Farms Dairy to aid the implementation of a state-of-the-art aseptic milk line capable of manufacturing products such as half and half, heavy whipping cream, and coffee creamers, and Carbmaster milk beverage. The new line will allow the facility to support over 150 jobs.

Last month, KR announced it would offer more American delivery through the addition of a new customer fulfillment center (CFC) in Aurora, Colorado, powered by the Ocado Group, engineering a model for the region, leveraging advanced robotics technology and creative solutions to redefine the customer experience in the Denver Metro Area.

Robust Financials

KR’s sales increased 8% year-over-year to $44.60 billion during the first quarter of 2022. Its operating profit came in at $1.51 billion, up 87% from the prior-year quarter. The company’s net earnings increased 374.3% from its year-ago value to $664.00 million.

Strong Profitability

KR’s 23.12% trailing-12-month ROE, ROC, and ROTA of 86.7%, 43.1%, and 6.1% are higher than the respective industry averages. Also, its 2.88% trailing-12-months asset turnover ratio is 253.7% higher than its industry average of 0.82%

Impressive Analyst Estimates

The consensus EPS estimate of $0.73 represents a 0.1% improvement year-over-year during the third quarter ending October 2022. Analysts expect KR’s revenue to increase 7.6% year-over-year to $34.09 billion during the second quarter ending July 2022.

In addition, the company has an impressive earnings history as it surpassed the consensus EPS estimate in each of the trailing four quarters.

Discounted Valuation

In terms of forward Non-GAAP P/E, the stock is currently trading at 12.33x, which is 31.7% lower than the industry average of 18.06. Also, in terms of EV/Sales, the stock is currently trading at 0.36x, which is 79.9% lower than the 1.81x industry average.

Consensus Rating and Price Target Indicate Potential Upside

Each of the 14 Wall Street analysts that rated KR rated it Buy. The 12-month median price target of $54.13 indicates a 12.4% potential upside from the current price level. The price targets range from a low of $41.00 to a high of $75.00.

POWR Ratings Reflect Solid Prospects

KR has an overall A grade, which equates to Strong 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 a B grade for Growth and Value. Its lower-than-industry valuation ratios are in sync with its Value grade. KR’s promising financial performance is consistent with the Growth grade.

Among the 38 stocks in the A-rated Grocery/Big Box Retailers industry, KR is ranked #6.

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

Bottom Line

KR has shown remarkable financial performance in the first quarter and is expected to witness solid growth given the company’s extended partnership along with enhancements in the products and services. Given the company’s robust profitability, dividend increase, and lower valuation, we think it could be a solid addition to one’s portfolio.

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

KR has an overall POWR Rating of A, equating to a Buy. Check out these other stocks within the Grocery/Big Box Retailers industry with A (Strong Buy) ratings: Natural Grocers by Vitamin Cottage, Inc. (NGVC), Ingles Markets Inc. Cl A (IMKTA), and Albertsons Companies, Inc. (ACI).

KR shares . Year-to-date, KR has gained 7.26%, versus a -19.14% rise in the benchmark S&P 500 index during the same period.

About the Author: Spandan Khandelwal

Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing. More...

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