Why Kroger Was Upgraded to Strong Buy Post-Q4 Results - Analyst Blog
On Mar 21, 2015, Zacks Investment Research upgraded The Kroger Company KR to a Zacks Rank #1 (Strong Buy) following the company’s strong fourth-quarter fiscal 2014 performance. The strong fundamentals, along with the company’s long-term earnings per share growth rate of 10.2%, could prove to be a solid bet for investors.
Why the Upgrade?
A dominant position among the nation’s largest grocery retailers enables Kroger to expand its store base and boost market share through product launches. The company’s strong corporate and national brands have helped garner customers’ loyalty. Kroger’s Customer 1st strategy enriches shopping experience, convincing buyers to return to the store. We expect the company to sustain its earnings growth momentum with this strategy and through its cost-containment efforts.
Kroger has continued with its earnings beat performance for the fourth consecutive quarter in fiscal 2014. After posting positive earnings surprises of 3.8%, 1.5% and 13.1% in the first, second and third quarters respectively, earnings surpassed the Zacks Consensus Estimate by 15.6% in the fourth quarter.
Given the company’s strong identical store sales growth for about 45 successive quarters and better-than-expected bottom-line performance, we believe that Kroger is poised to achieve its long-term earnings per share growth rate target of 8%–11%.
In the last concluded quarter, Kroger posted earnings of $1.04 per share that beat the Zacks Consensus Estimate of 90 cents, and surged 33.3% from 78 cents earned in the prior-year quarter. The improvement was aided by its Customer 1st strategy, increase in sales and strong fuel margins. The acquisition of Harris Teeter also supported the bottom line. The better-than-expected results prompted management to provide an upbeat outlook.
Management now projects fiscal 2015 earnings between $3.80 and $3.90 per share. Strong results and the upbeat guidance led to a rise in the Zacks Consensus Estimate, which increased 4.6% to $3.87 for fiscal 2015 and 3.6% to $4.27 for fiscal 2016 over the past 30 days.
We believe that the company has enormous opportunities to augment identical supermarket sales, alleviate gross margin pressure, improve operating margin and enhance return on invested capital. Management continues to deploy capital to concentrate more on remodels, merchandising and other viable projects.
Favorably Ranked Stocks
Other favorably ranked stocks include Flowers Foods, Inc. FLO, SUPERVALU Inc. SVU and Whole Foods Market, Inc. WFM, all carrying a Zacks Rank #2 (Buy).
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KROGER CO (KR): Free Stock Analysis Report
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