Time to Buy Kroger (KR) or United Natural Foods (UNFI) Stock After Earnings?
Value investors in particular may be eying Kroger KR and United Natural Foods UNFI stock with both beating their quarterly earnings expectations this week. The grocery chain giant and leading organic food distributor have been on two different spectrums in terms of their price performance but remain attractive regarding promising business operations and reasonable valuations.
To that point, Kroger’s stock is at 52-week highs at around $55 a share while United Natural Foods is sitting on lows of $11 a share. That said, let’s see if Kroger’s strong year-to-date rally can continue and if United Natural Foods stock is poised for a sharp rebound.
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Earnings Beats
Kroger’s stock turned heads on Thursday spiking +10% after posting very favorable Q4 results driven by lower supply-chain costs. Fourth quarter earnings of $1.34 per share soared 35% YoY and crushed expectations of $1.13 a share by 18%. Quarterly sales of $37.06 billion rose 6% from the comparative quarter despite slightly missing estimates of $37.24 billion. More impressive, Kroger has now surpassed earnings expectations for 17 consecutive quarters dating back to March of 2020.
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Reporting its fiscal second quarter results on Wednesday, United Natural Foods posted earnings of $0.07 a share which easily surpassed estimates of $0.01 a share. However, this was down from $0.78 per share a year ago with supply chain disruptions, shrink, and the loss of inflation-driven procurement gains being the main culprits. United Natural Foods’ Q2 sales of $7.77 billion missed estimates by -2% and was slightly down from $7.81 billion in the prior year quarter. Notably, United Natural Foods has still exceeded earnings expectations in three of its last four quarterly reports.
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Kroger’s Value
Following its recent rally, Kroger’s stock still trades at an attractive 12.7X forward earnings multiple which is on par with the Zacks Retail-Supermarkets' industry average and well below the S&P 500’s 21.6X.
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Adding more value to Kroger shares is a 2.09% annual dividend yield and a potential acquisition of its competitor Albertsons ACI has kept investors interest as well. For now, the Albertsons acquisition remains on hold as it would create the largest supermarket merger in U.S. history and has faced regulatory scrutiny from the Federal Trade Commission (FTC).
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United Natural Foods Value
Showing its immense earnings potential in recent years the argument for United Natural Foods stock offering sound value is that UNFI shares trade at just 0.02X forward sales. Such a distinct discount is hard to overlook even amid what are hopefully short-term probability issues considering United Natural Foods' total sales are forecasted to rise 2% this year to $31 billion.
In comparison, United Natural Foods’ Zacks Food-Miscellaneous industry average is at 1.4X sales with the S&P 500 at 3.6X.
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Takeaway
With EPS estimates likely to trend higher after exceeding their earnings expectations, Kroger and United Natural Foods stock currently sport a Zacks Rank #2 (Buy). Furthermore, when considering their valuations, Kroger’s rally could very well continue and United Natural Foods' stock is starting to make the case for a rebound.
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The Kroger Co. (KR) : Free Stock Analysis Report
United Natural Foods, Inc. (UNFI) : Free Stock Analysis Report
Albertsons Companies, Inc. (ACI) : Free Stock Analysis Report