Why Kroger Stock Is Down By 9% Today

Kroger Stock Falls As Q2 Report Misses Traders’ Expectations

Shares of Kroger found themselves under strong pressure after the company released its second-quarter results. Kroger reported revenue of $31.68 billion and GAAP earnings of $0.61 per share, beating analyst estimates on revenue and missing them on earnings.

The company has also raised its full-year guidnance and expects to report adjusted earnings of $3.25 – $3.35 per share. This guidance exceeds analyst expectations for the current year. Currently, analysts expect that Kroger will report earnings of $3.06 per share this year and $3.07 per share in the next year, so the stock is trading at less than 14 forward P/E.

While Kroger’s full-year earnings guidance was higher than analyst expectations, the market has clearly wanted to see more evidence of longer-term sustainable growth.

What’s Next For Kroger Stock?

Kroger stock experienced several one-day sell-offs in 2021, but traders were always very quick to buy the stock at a discount. Current valuation levels look normal for the current market environment, and the key question is whether traders see enough growth potential for the company.

At the first glance, the current sell-off looks like overreaction from market players. The company’s results were decent, and Kroger raised its guidance for this year. Perhaps, too many traders bought the stock ahead of earnings hoping to see blockbuster results, so an ordinary report, which missed analyst estimates on GAAP earnings but beat them on adjusted earnings, has suddenly served as a bearish catalyst.

In my opinion, Kroger stock has a good chance to rebound from current levels in the upcoming trading sessions as an instant 9% discount with no significant negative catalysts is rarely provided in the current market environment. Unless there is a broad market sell-off, speculative traders and value-oriented investors will likely provide more support to Kroger stock in the upcoming weeks.

For a look at all of today’s economic events, check out our economic calendar.

Kroger Shares Slump Over 8% After Gross Margin Disappoints in Q2

Kroger shares slumped over 8% on Friday after the food retailer said its gross margin – business’s net sales minus the cost of goods sold – fell to 21.4% year-on-year during the second quarter from 22.8% a year ago despite beating earnings estimates.

The company said this was primarily due to continued price investments, and higher shrink and supply chain costs, partially offset by sourcing benefits and growth in the alternative profit business.

However, the U.S. supermarket chain reported better-than-expected earnings and revenue in the second quarter and lifted its full-year guidance. The retailer, which operates over 2,500 supermarkets in the U.S., reported adjusted earnings per share of $0.80, beating the market expectations of $0.64 per share.

The supermarket chain is known for exceeding earnings expectations. Kroger has beaten earnings estimates in seven of the last eight quarters.

Kroger posted revenues of $31.68 billion for the quarter ended July 2021, beating the Wall Street consensus estimates of 30.4 billion. Compared to an earlier forecast of 2.5%-4% decline, the company now expects a smaller decline of 1%-1.5% annually.

Kroger shares slumped over 8% to $42.08 on Friday. The stock has surged over 30% so far this year.

Executive Comments

Kroger’s strong execution resulted in identical sales above our internal expectations for the second quarter, and we continued to remove costs from the business. Driven by the momentum in our results and sustained food at home trends, we are raising our full-year guidance,” said CFO Gary Millerchip.

“We now expect our two-year identical sales stack to be in the range of 12.6% to 13.1%. We expect our adjusted net earnings per diluted share to be in the range of $3.25 to $3.35.”

Analyst Comments

“Another beat & raise as expected with solid IDs, OG&A leverage, and EBIT/EPS. One (big) caveat: gross margin missed and should stoke fears about margin pressure from inflation. Risk/reward skews negative in our view with share price & valuation elevated,” noted Simeon Gutman, Equity Analyst at Morgan Stanley.

“Our view is industry sales will eventually unwind and normalize; back to school/office post-Labor Day could be a catalyst for this to occur in 2H. But the Delta variant may keep demand elevated and inflation should provide a top-line tailwind. Importantly, we think the stock was already discounting at least $3.50 in ’21 EPS and as much as $3.75-$4.00. KR should still beat its updated guidance range, but we don’t see much upside beyond $3.50-$3.75 given gross margin choppiness and IDs that are unlikely to reaccelerate above 1H levels.”

Kroger Stock Price Forecast

Fifteen analysts who offered stock ratings for Kroger in the last three months forecast the average price in 12 months of $38.71 with a high forecast of $46.00 and a low forecast of $31.00.

The average price target represents a -8.38% change from the last price of $42.25. From those 15 analysts, two rated “Buy”, ten rated “Hold” while three rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $31 with a high of $50 under a bull scenario and $16 under the worst-case scenario. The firm gave an “Underweight” rating on the food retailer’s stock.

Several other analysts have also updated their stock outlook. JP Morgan raised the target price to $40 from $36. Deutsche Bank lifted the price target to $42 from $41. Guggenheim upped the target price to $41 from $37.

Check out FX Empire’s earnings calendar

Kroger Overbought and Overpriced

The Kroger Co. (KR) reports fiscal Q1 2022 earnings in Friday’s pre-market, with analysts looking for a profit of $0.64 per-share on $30.7 billion in revenue. If met, earnings-per-share (EPS) will mark a 12% reduction in profit compared to the same quarter last year, when Americans overstocked their shelves with food and supplies due to the pandemic. The stock jumped more than 4% in June after beating Q4 2021 top and bottom-line estimates and is now trading near an all-time high.

Outperforming Larger Rivals in 2021

The grocery giant is outperforming Walmart Inc. (WMT) and Amazon.com Inc. (AMZN) by wide margins in 2021, despite the rapid growth of their supermarket services. The chain, which operates more than 3,000 locations under the Fry’s, King Sooper’s, City Market, and Ralph’s labels, has benefited from soaring foot traffic as unvaccinated folks visit their pharmacies. In addition, it has maintained profit margins despite food commodity inflation, strategically raising prices.

Many big investors own Kroger stock, including Warren Buffett, who raised his stake from 51.06 to 61.79 million shares during the quarter. Even so, earnings growth has decelerated since 2020, highlighted by a digital sales slowdown to an unimpressive 16% in the last quarter. Additional slowing could easily trigger a reversal and pullback, compounded by 24% upside since the last earnings report.

Wall Street and Technical Outlook

Wall Street is taking a cautious view, posting a consensus ‘Hold’ rating based upon 5 ‘Buy’, 1 ‘Overweight’, 15 ‘Hold’, and 3 ‘Underweight’ recommendations. In addition, four analysts recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $28 to a Street-high $48 while the stock is set to open Tuesday’s session less than $2 below the high target. Given slowing growth, this lofty placement favors new short sales, if the seller is willing to pay the current $0.21 per-share dividend.

Kroger spiked into the low 40s in a vertical impulse in January 2020 and gave up those gains during the pandemic decline. A slow but persistent recovery wave reached the prior high in August 2021, yielding an immediate breakout that posted an all-time high at 47.99 last week. The stock is consolidating near that level as the new trading week begins, with headwinds favoring a sell-the-news reaction after Friday’s report.

For a look at all this week’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Is Kroger On Track To Beat Earnings Expectations Again?

Kroger, one of the world’s largest food retailers, is expected to report its fiscal second-quarter earnings of $0.64 per share, which represents a year-over-year decline of over 12% from $0.73 per share seen in the same period a year ago.

The retailer, which operates over 2,500 supermarkets in the U.S., would post revenue of 30.4 billion, down about -0.3% year on year.

However, as evidenced by its last four earnings reports, the supermarket chain is known for beating earnings estimates. In the last four quarters, on average, the company has beaten earnings estimates over 21%.

Kroger Company will report earnings for the fiscal quarter ending July 2021 on Friday, September 10 before the market open. Friday’s better-than-expected results could help the stock hit new all-time highs.

Kroger shares have surged over 45% so far this year. The stock closed 1.39% lower at $46.65 on Friday.

Analyst Comments

Kroger (KR) is one of the largest conventional food retailers, with competitive advantages including leading scale, an advanced customer data science platform, and ramping digital capabilities. 2020 was a historically strong year for KR driven by COVID-19 uplifts, but KR’s share gains are already normalizing we anticipate an industry sales slowdown in 2021-2022 that is underappreciated in Street estimates,” noted Simeon Gutman, equity analyst at Morgan Stanley.

“Meanwhile we model EBIT margins to return to pre-COVID levels by 2022 as normalizing promotional activity and e-comm pull-forward pressure margins. Longer-term we continue to struggle to model a path to sustainable EBIT growth and margin stabilization.”

Kroger Stock Price Forecast

Fifteen analysts who offered stock ratings for Kroger in the last three months forecast the average price in 12 months of $38.71 with a high forecast of $46.00 and a low forecast of $31.00.

The average price target represents a -17.02% change from the last price of $46.65. From those 15 analysts, two rated “Buy”, ten rated “Hold” while three rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $31 with a high of $50 under a bull scenario and $16 under the worst-case scenario. The firm gave an “Underweight” rating on the food retailer’s stock.

Several other analysts have also updated their stock outlook. JP Morgan raised the target price to $40 from $36. Deutsche Bank lifted the price target to $42 from $41. Guggenheim upped the target price to $41 from $37.

Check out FX Empire’s earnings calendar

The Biggest Risk To Economic Growth. Should You Still Buy The Dip?

In fact, the all-time record for new highs in one year is 77, set in 1995. Trend watchers note that 2021 is only the 11th time since 1928 that the S&P 500 has rallied +20% or more during the first 8 months of the year. In all but the two big market crash years of 1929 and 1987, the S&P 500 managed to hold a solid double-digit gain into year-end, according to Bank of America research.

Bears vs bulls

Bears, however, are quick to point out that the S&P 500 hasn’t had a pullback of at least -5% or more during the entire climb higher this year, something that generally happens about three times a year. Typically, corrections of -5% to -10% are considered healthy. Bears of course believe stocks are wildly overvalued due in large part to the Federal Reserve’s monetary supports and “easy money”. Once the Fed starts reducing its asset purchases and lifting interest rates, bears believe investors will take a more “risk off” attitude and the bull rally in stock markets will correct to some degree.

Overall, bulls seem comfortable with the Fed beginning its asset purchase “taper” later this year and that is partially due to Fed Chair Jerome Powell’s insistence that the economy “still has much ground to cover” before rate hikes are on the table. Bulls are also anticipating a second shot at a “reopening boom” after the current wave of coronavirus has passed. Remember, this wave cut short the Covid-free summer spending surge that everyone had been anticipating so bulls believe this pent-up demand is going to be spent in the quarters ahead.

What to watch?

The biggest risk to economic growth right now is not on the demand side but rather on the supply side as shortages for everything across the board are limiting the amount of goods and services available. Demand amid the summer Covid surge has cooled a bit, which may be a good thing in the long run as it’s given some manufacturers a minute to catch up. And again, bulls believe this is creating just another layer of pent up demand that consumers will satisfy down the road.

Turning to next week, remember that U.S. stock, bond, and commodity markets are closed on Monday, September 6 for the Labor Day holiday. The short week will also be light on data with just the Fed’s Beige Book and July Consumer Credit on Wednesday, and the Producer Price Index on Friday. Next week’s earnings will include Casey’s General Store, Lululemon, GameStop, Oracle, Z-Scaler, Academy Sports, and Kroger to name a few.

SP500 analysis

Sp500 rallied despite weak NFP. There is only one reason for such reaction – the Federal Reserve still cannot move to tighten monetary policy. However, the Cycles forecast the best buying dip opportunity in October if other conditions will be there. We certainly can’t judge now if it is going to be conformed by other tools.

sp500 cycles september 2021

We have bearish ADL divergence on a daily chart and potentially it will play well and create a buying opportunity in October. However, I have to say there is still good accumulation in this market. So, I believe if this market gives a sell signal in September, traders should cash out their positions quite quickly. We are in a strong bull trend and so far all fundamentals still support the stock market.

ES ##-## (Daily) 2021_09_06 (2_51_28 AM)

Weekly Earnings Preview: GameStop, Lululemon Athletica, Oracle and Kroger in Focus

Earnings Calendar For The Week Of September 6

Monday (September 6)

Ticker Company EPS Forecast
DPH Dechra Pharma £47.90
SMAR Smartsheet Inc. -$0.13
SUMO Sumo -$0.14

Tuesday (September 7)

Ticker Company EPS Forecast
CASY Casey’s General Stores $2.99

Wednesday (September 8)

IN THE SPOTLIGHT: GAMESTOP, LULULEMON ATHLETICA

GAMESTOP: The world’s largest multichannel video game retailer is expected to report its fiscal second-quarter loss of -$0.67 per share, an improvement from a loss of -$1.40 per share seen in the same period a year ago.

The Grapevine, Texas-based company would post year-over-year revenue growth of about 20% year-on-year to around $1.1 billion. EPS estimates have been exceeded twice in the last four quarters.

LULULEMON ATHLETICA: The Vancouver-based retailer healthy lifestyle-inspired athletic retailer is expected to report its fiscal second-quarter earnings of $1.18 per share, which represents year-over-year growth of about 60% from $0.74 per share seen in the same period a year ago. The apparel retailer would post year-over-year sales growth of about 50% to $1.34 billion.

Lululemon Athletica (LULU) is a LT topline grower, supported by compelling secular tailwinds (e.g., performance/athleisure focus), a market share gain opportunity, & credible future revenue driver (e.g., international expansion, digital growth, & product innovation/expansion into new categories). The company’s recent MIRROR acquisition offers both revenue & profitability upside, as reflected in our bull case,” noted Kimberly Greenberger, equity analyst at Morgan Stanley.

LULU dominates the NA athletic yoga apparel category due to its unique brand positioning & fashionable products. Covid accelerated consumers health & wellness focus & fashion casualization, both of which should benefit LULU.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE SEPTEMBER 8

Ticker Company EPS Forecast
DNLM Dunelm Group £3.00
KFY Korn Ferry International $1.07
CPRT Copart $0.91
GME GameStop -$0.67
RH Restoration Hardware $6.48
ABM ABM Industries $0.81
AVAV AeroVironment -$0.24
LULU Lululemon Athletica $1.18

Thursday (September 9)

IN THE SPOTLIGHT: ORACLE

The world’s largest database management company is expected to report its fiscal first-quarter earnings of $0.97 per share, which represents year-over-year growth of over 4% from $0.93 per share seen in the same period a year ago. The Austin, Texas-based computer technology corporation would post revenue of $9.8 billion.

Oracle‘s current low valuation at ~16.7x CY22e EPS reflects its slower growth rate compared to peers. Despite potential opportunities within existing database customers and cloud-based ERP applications, offsets from waning businesses mean 2021 likely lacks the catalysts for the positive inflection in revenue growth investors would need to see to drive multiples higher,” noted Keith Weiss, equity analyst at Morgan Stanley.

“With management guiding to mid-single-digit CC revenue growth in a software sector filled with strong secular growth stories, and operating margins declining in FY22 due to heightened investment in Cloud, we remain Equal-weight while our price target moves up to $77.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE SEPTEMBER 9

Ticker Company EPS Forecast
MRW Morrison Supermarkets £5.77
ASO Avesoro Resources $1.38
VRNT Verint Systems $0.42
FIZZ National Beverage $0.52

Friday (September 10)

IN THE SPOTLIGHT: KROGER

Kroger, one of the world’s largest food retailers, is expected to report its fiscal second-quarter earnings of $0.64 per share, which represents a year-over-year decline of over 12% from $0.73 per share seen in the same period a year ago.

The retailer, which operates over 2,500 supermarkets in the U.S., would post revenue of 30.4 billion, down about -0.3% year on year. However, it is worth noting that in the last four quarters, on average, the company has beaten earnings estimates over 21%.

Kroger Earnings to Fall About 20% in Q1; Target Price $35

Kroger, one of the world’s largest food retailers, is expected to report its fiscal first-quarter earnings of $0.98 per share, which represents a year-over-year decline of about 20% from $1.22 per share seen in the same period a year ago.

The retailer, which operates over 2,500 supermarkets in the U.S., would post a revenue decline of 5.6% year-on-year to $39,222 million. However, it is worth noting that in the last four quarters, on average, the company has beaten earnings estimates about 19%.

Kroger is likely to have faced tough year-over-year comparisons in sales, as COVID-19 benefits are lapped. Industry experts believe that lower at-home consumption activities and a drop in pantry-loading trends might have hurt the company’s first-quarter top-line performance,” noted analysts at ZACKS Research.

Kroger shares rose over 20% so far this year. The stock ended 0.8% lower at $38.4 on Monday.

Analyst Comments

“The company has been making every effort to strengthen position not only with respect to products but also in terms of the way consumers prefer shopping. The company’s “Restock Kroger” program involving investments in omni-channel platform, identifying margin-rich alternative profit streams, merchandise optimization, and lowering of expenses has been gaining traction,” noted analysts at ZACKS Research.

“These aided the company to post decent fourth-quarter fiscal 2020 results, wherein both the top and the bottom lines grew year-over-year. However, Kroger expects tough year-over-year comparison in fiscal 2021, and signaled a decline in identical sales, without fuel. Pandemic-induced demand is likely to moderate, as vaccination drive gather space and consumers return to the old normal.”

Kroger Stock Price Forecast

Eight analysts who offered stock ratings for Kroger in the last three months forecast the average price in 12 months of $35.00 with a high forecast of $38.00 and a low forecast of $31.00.

The average price target represents a -8.85% from the last price of $38.40. Of those 8 analysts, none rated “Buy”, five rated “Hold” and three rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $29 with a high of $45 under a bull scenario and $16 under the worst-case scenario. The firm gave an “Underweight” rating on the software company’s stock.

Kroger (KR) is one of the largest conventional food retailers, with competitive advantages including leading scale, an advanced customer data science platform, and ramping digital capabilities. 2020 was a historically strong year for KR driven by COVID-19 uplifts, but KR’s share gains are already normalizing we anticipate an industry sales slowdown in 2021-2022 that is underappreciated in Street estimates,” noted Simeon Gutman, equity analyst at Morgan Stanley.

“Meanwhile we model EBIT margins to return to pre-COVID-19 levels by 2022 as normalizing promotional activity and e-comm pull-forward pressure margins. Longer-term we continue to struggle to model a path to sustainable EBIT growth and margin stabilization.”

Several other analysts have also updated their stock outlook. Oppenheimer raised the price target to $38 from $34. BMO lifted the price target to $36 from $34. Jefferies increased the price target to $37 from $33. UBS raised the target price to $35 from $33. Deutsche Bank lifted the target price to $36 from $35.

Check out FX Empire’s earnings calendar

Kroger Tops Q4 Estimates, But Expects Sales Slowdown as Pandemic-Driven Demand Wanes

Kroger, one of the world’s largest food retailers, reported better-than-expected profit in the fourth quarter but the company flagged that its pandemic-driven sales growth will fade this year.

The retailer which operates over 2,500 supermarkets in the U.S. said it earned $0.81 per share in the quarter ended on January 30, 2021, beating Wall Street consensus estimates of $0.69 cents per share.

The company said its total company sales were $30.7 billion in the fourth quarter, compared to $28.9 billion for the same period last year. Excluding fuel and dispositions, sales grew 10.7%.

Kroger Q4 ID sales growth came in >10% y/y, FY’21 guidance was provided, the FY’21 capex range’s midpoint is <10% higher than consensus, and the all-important Investor Day is scheduled for Wed Mar 31 — clearing the investment community’s bar on each front, in our view. Q4 EPS of $0.81 beat our/consensus $0.69, driven by higher gross margin and lower interest expense, and consensus currently sits below FY’21 ID sales growth, operating profit, and EPS ranges,” noted Matt Fishbein, equity analyst at Jefferies.

However, Kroger reported a net attributable loss of $77 million, worse compared to a profit of $327 million seen in the same period a year ago. Kroger forecasts adjusted full-year same-store sales to decline in the range of 3%-5% and earnings per share in the range of $2.75-$2.95.

Kroger shares, which rose over 9% in 2020, traded about 3% higher at $34.11 on Thursday.

Kroger Stock Price Forecast

Eight analysts who offered stock ratings for Kroger in the last three months forecast the average price in 12 months of $32.43 with a high forecast of $39.00 and a low forecast of $28.00.

The average price target represents a -4.48% decrease from the last price of $33.95. From those eight analysts, none rated “Buy”, five rated “Hold” and three rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $28 with a high of $45 under a bull scenario and $15 under the worst-case scenario. The firm gave an “Underweight” rating on the multi-department stores’ stock.

Several other analysts have also updated their stock outlook. BofA Global Research lowered the price objective to $28 from $40. Stephens raised the target price to $35 from $30. Telsey advisory group slashed the price objective to $39 from $43.

Moreover, Kroger had its price objective increased by research analysts at Wells Fargo & Company to $34 from $31. The brokerage presently has an “equal weight” rating on the stock. Zacks Investment Research cut from a “buy” rating to a “hold” rating and set a $34.00 price objective on the stock. Barclays cut from an “equal weight” rating to an “underweight” rating and set a $31.00 price objective on the stock.

Analyst Comments

Kroger (KR) is one of the largest conventional food retailers, with competitive advantages including leading scale, an advanced customer data science platform, and ramping digital capabilities. 2020 was a historically strong year for KR driven by COVID-19 uplifts, but KR’s share gains are already normalizing we anticipate an industry sales slowdown in 2021-2022 that is underappreciated in Street estimates,” said Simeon Gutman, equity analyst at Morgan Stanley.

“Meanwhile we model EBIT margins to return to pre-COVID-19 levels by 2022 as normalizing promotional activity and e-comm pull-forward pressure margins. Longer-term we continue to struggle to model a path to sustainable EBIT growth and margin stabilization,”

Check out FX Empire’s earnings calendar

Kroger Shares Slump as Online Sales Growth Slows; Target Price $36

Kroger, one of the world’s largest food retailers, reported better-than-expected profit in the third quarter but its COVID-19-driven online sales growth slowed from the preceding quarter due to easing lockdown restrictions, sending its shares down over 4% on Thursday.

The retailer which operates over 2,500 supermarkets in the U.S. reported digital sales growth of 108% in the third quarter ended November 7, lower than the 127% surge it registered in the preceding quarter.

Kroger posted total sales of $29.7 billion in the third quarter, compared to $28.0 billion for the same period last year. Excluding fuel, it climbed just over 6% to $29.72 billion, lower than the Wall Street estimate of $29.97 billion. The U.S. supermarket chain reported an EPS of $0.80 and adjusted EPS of $0.71, up 51% compared to the prior year. That better than market consensus of $0.61.

The U.S. supermarket chain forecasts adjusted per-share profit between $3.30 to $3.35 in 2020, a little better compared with its prior range of $3.20 to $3.30. Kroger forecasts same-store sales, to increase nearly 14%, up from previous expectations of a more than 13% growth.

“Our $33 per share valuation of narrow-moat Kroger is unlikely to change substantially after the firm announced solid third-quarter results (10.9% identical sales growth, excluding fuel; 2.7% operating margin) that continue to be driven by Americans’ turn homeward during the pandemic,” said Zain Akbari, equity analyst at Morningstar.

“With vaccines on the horizon, we continue to expect normalization as case counts fall in fiscal 2021, leading to2%-3% top-line growth and operating margins long-term.”

Kroger’s shares closed 4.36% lower at $30.88 on Thursday. However, the stock is up over 6% so far this year.

Executive Comments

“As a result of our continued strong performance, market share growth and the expectation of sustained trends in food at home consumption for the remainder of our fiscal year, we are raising our full-year 2020 guidance. For the full year 2020, we expect total identical sales without fuel to be around 14% and adjusted EPS growth of 50% to 53%,” said CFO Gary Millerchip

“Looking toward 2021, we believe that our performance will be stronger than we would have expected prior to the pandemic when viewed as a two-year stacked result for identical sales without fuel growth and as a compounded growth rate over 2020 and 2021 for adjusted earnings per share growth.”

Kroger Stock Price Forecast

Thirteen equity analysts forecast the average price in 12 months at $36.27 with a high forecast of $40.00 and a low forecast of $33.00. The average price target represents a 17.45% increase from the last price of $30.88. From those 13 analysts, one rated “Buy”, 12 rated “Hold”, none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $35 with a high of $55 under a bull-case scenario and $17 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the multi-department stores’ stock. JP Morgan lowered the target price to $34 from $38 and Jefferies assumes coverage with hold rating and target price of $33.

Several other analysts have also upgraded their stock outlook. Kroger had its price objective increased by investment analysts at Scotiabank to $40 from $38. The brokerage presently has a “sector outperform” rating on the stock. Wells Fargo increased their price objective to $38 from $37 and gave the company an “overweight” rating in May. Bank of America lowered shares from a “buy” rating to a “neutral” rating and set a $40.00 price objective.

Analyst Comments

“Kroger (KR) is one of the largest conventional food retailers, with competitive advantages including leading scale, an advanced customer data science platform, and ramping digital capabilities. COVID-19 disruption is driving a meaningful acceleration in ID sales and profitability in 2020 and could result in a secular share shift to Food at Home,” said Simeon Gutman, equity analyst at Morgan Stanley.

“We expect the Food Retail industry to experience margin pressure from discount and e-comm operators over the next several years. For KR, we struggle to model a path to sustainable EBIT growth and margin stabilization. We forecast long-term ID sales of 2.5%, roughly in-line with the industry, as we expect in-store and online initiatives to keep pace,” Gutman added.

Upside and Downside Risks

Risks to Upside: 1) COVID-19 provides meaningful ID sales/EBIT uplift and drives longer-term shift to Food at Home. 2) Continued share gains from other conventional operators/independent grocers. 3) Ocado partnership shows signs of progress – highlighted by Morgan Stanley.

Risks to Downside: 1) COVID-19 fails to drive higher profitability with incremental expenses to support demand. 2) Promotional environment intensifies, driven by WMT/discounters. 3) Online competition pressures margins.

Check out FX Empire’s earnings calendar

Kroger Upgrades 2020 Sales and Profit Forecast, But Analysts are Skeptical

Kroger Co, one of the world’s largest food retailers, expects their 2020 same-store sales without fuel to grow more than 13% and forecasts full-year adjusted EPS growth of about 45% to 50%; however, some equity analysts are skeptical over the long-term growth story.

U.S. supermarket chain said its total company sales were $30.5 billion in the second quarter, compared to $28.2 billion for the same period last year. Excluding fuel, sales grew 13.9%. Gross margin was 22.8% of sales for the second quarter.

During the quarter, Kroger repurchased $211 million shares under its $1 billion board authorization announced on November 5, 2019. On September 11, 2020, the Board of Directors authorized a $1 billion share repurchase program, replacing the prior authorization.

“Kroger (KR) reported upside on 2Q20 comps, a new $1 billion buyback, and delivered a generally optimistic FY20 outlook based on sustained FAH trends. However, the co. is investing in pricing/promos along w/ free pickup in an attempt to enhance overall value, which is hampering leverage,” said Christopher Mandeville, equity analyst at Jefferies.

“Incremental profitability in digital is a pos. step, although we have doubts about long-term strategy. Overall, reit. Hold as we question KR’s strategic positioning and long-term outlook vs. scaled peers,” Mandeville added.

Kroger’s shares ended 1.06% higher at $34.37 on Friday, but the stock is up about 20% so far this year.

Executive comments

“As we talk to other companies across America, we believe return to work will look very different, with many employees working part of the week from home. 2021 will be even stronger than we previously anticipated,” said chief executive officer Rodney McMullen told analysts on a call, Reuters reported.

Kroger stock forecast

Sixteen analysts forecast the average price in 12 months at $36.53 with a high forecast of $42.00 and a low forecast of $33.00. The average price target represents a 6.28% increase from the last price of $34.37. From those 16 equity analysts, five rated “Buy”, 11 rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $35 and gave the company an “Equal-weight” rating. JP Morgan Chase & Co. boosted their price objective on Kroger to $34 from $33 and gave the company a “Neutral” rating.

Other equity analysts also recently updated their stock outlook. Telsey Advisory Group raised their price target to $43 from $41. ValuEngine upgraded Kroger from a “Strong sell” rating to a “Sell” rating in a research report on Monday, August 3rd. Wells Fargo & Co boosted their price objective to $38 from $37 and gave the stock an “Overweight” rating. BMO Capital Markets reiterated a “Hold” rating and set a $34.00 price target. At last, UBS Group increased their stock price forecast to $35 from $33 and gave the stock a “Neutral” rating.

Analyst views

“Our $31.50 fair value estimate for narrow-moat Kroger should rise by a mid-single-digit percentage after the company announced strong second-quarter earnings fueled by Americans’ continued pandemic-related turn homeward. While top-line expansion tapered from first-quarter levels ( 14.6%  identical sales growth,  excluding fuel,  versus 19.0%), Kroger now appears poised to beat our prior full-year 9% target, particularly with rising infection rates in the fall and winter likely to maintain or amplify current trends,” Zain, equity analyst at Morningstar.

“Coupled with strong scale-driven profitability (roughly 70 basis points of adjusted operating profit expansion, or nearly 85 basis points year to date, against our 30-basis-point prior estimate), we anticipate lifting our fiscal 2020 adjusted EPS estimate of $2.78 toward management’s $3.20-$3.30 range,” Akbari added.

Upside and Downside Risks

Upside: 1) COVID-19 provides meaningful ID sales/EBIT uplift and drives longer-term shift to Food at Home. 2) Continued share gains from other conventional operators/independent grocers. 3) Ocado partnership shows signs of progress – highlighted by Morgan Stanley.

Downside: 1) COVID-19 fails to drive higher profitability with incremental expenses to support demand. 2) Promotional environment intensifies, driven by WMT/discounters. 3) Online competition pressures margins.

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