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Seeking Alpha: Kroger Is Still a Buying Opportunity at Its All-Time High

Seeking Alpha: Kroger Is Still a Buying Opportunity at Its All-Time High

By    |   Wednesday, 16 December 2015 06:41 AM

Shares of Kroger Co., the largest U.S. supermarket chain, are still seen as a bargain despite hitting all-time highs.

Kroger recently raised its annual forecast after new locations and organic products fueled sales. The Cincinnati grocery giant also agreed to buy Midwestern supermarket chain Roundy’s Inc. for about $800 million, including debt.

“But with the Roundy's acquisition and continued strong comp sales growth, KR is still short of expensive,” Josh Arnold writes for Seeking Alpha.

“I think KR will consolidate or pullback and then make another push to new all-time highs around $44 in the near term,” Arnold wrote.

The stock recently traded at $42.47.

“The company's comp sales have increased for 48 consecutive quarters and management seems very adept at picking favorable acquisition targets. The company's earnings continue to rise and so does its stock price, indicating that Kroger's status as a market leader is still intact,” Arnold wrote.

“Kroger's dominance in the grocery space has been nothing short of awe-inspiring as it has managed to produce a string of comp sales increases that is unrivaled by virtually anyone. This and the company's ability to wring margin from a business that is decidedly difficult to make money in caused me to eschew my bias against low margin grocers and take a look at Kroger," he wrote.

"And judging by the performance of the stock, I'm very glad I did. Kroger is different from other grocers and that is why I like it so much and why it has proven itself to be a market leader,” Arnold wrote.

Kroger’s expansion plan involves acquiring smaller grocery chains and adding more organic products, Bloomberg reported.

It previously bought other regional stores and scooped up Harris Teeter Supermarkets Inc. last year. Kroger’s revenue also has been helped by a more aggressive natural-foods business.

Kroger’s Simple Truth line of natural and organic goods has grown to more than $1 billion in annual sales as more Americans attempt to eat healthier. The chain has had success pulling customers from pricier, higher-end chains, such as Whole Foods Market Inc., with its organic cereals, butter and herbs.

Meanwhile, Jack Foley of Amigobulls.com also praises Kroger, but does point out two risks.

“Kroger's own brand ‘Simple Truth’ has been an enormous success since inception. This combined with customer analytics has resulted in enormous growth for the company in its health food divisions,” he wrote.

But recessionary risks and online threats from rivals Costco and Wal-Mart are the two biggest risks he sees for Kroger going forward.

“Kroger is a perfect example of a company that is riding the new trend in the U.S. of the shift to healthier and organic food. This combined with its own expanding brands (which have higher profit margins) demonstrate to me that growth should continue in the near term,” Foley wrote.

“However with delivery times becoming shorter and shorter for fresh food combines with recessionary fears (which would adversely affect Kroger more than its competitors), risks still exist for Kroger. If the economy continues to strengthen keep your capital in Kroger. If not, I would be thinking of a company with a lower valuation in this sector like Walmart, as the risk to the downside would be less,” Foley said.

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Shares of Kroger Co., the largest U.S. supermarket chain, are still seen as a bargain despite hitting all-time highs.
Kroger, share price, stock, supermarket invest
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2015-41-16
Wednesday, 16 December 2015 06:41 AM
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