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3 Analysts Debate Kroger's Stock Following Q3 Earnings

Jayson Derrick

Kroger Co (NYSE: KR) reported Thursday third-quarter resultsthat fell short of expectations.

Kroger reported quarterly earnings of 47 cents per share, which missed the analyst consensus estimate by a penny. The company reported quarterly sales of $27.974 billion, which missed the analyst consensus estimate of $28.15 billion.

What's next for the troubled stock? Analysts were quick to offer wide ranging views.

Signs Of Improvement Exist For Kroger

Kroger's management could have done a better job of emphasizing several metrics which showcase an improving business, Wells Fargo analyst Edward Kelly wrote in a note. These include FIFO EBIT coming in better than expected by 8% when excluding all one-time items, identical store sales of 2.5% beat expectations of 2.3% and full-year EPS guidance was maintained despite a 7-cent per share cost from pharmacy/LIFO.

Kroger's report still shows there are some issues to address but investors should "feel better about the story" today and the stock could move higher as investors fully digest the results, Kelly said. He maintains an Outperform rating on Kroger's stock with a $31 price target.

Related Link: The Street Reacts To Kroger's Q2 With Mixed Takeaways

Kroger's EBIT Problems

Buckingham Research Group's Bob Summers said Kroger showed improving trends in identical sales but at the same time EBIT contracted on a year-over-year bases. EBIT also declined at a time when the company enjoyed stronger fuel CPG (cents per gallon) versus last year. As such, there's reason to believe the core grocery business suffers from ongoing pressure which translates to limited earnings visibility.

View more earnings on KR

Ongoing competition is likely to further impede on Kroger's recovery efforts which warrants a continued "cautious posture," Summer wrote. He maintains at Underperform with a $20 price target.

Another Disappointing Quarter For Kroger

Kroger reported yet another disappointing earnings print due to increasing competition while "competitive capital investments" continue to impact the bottom line, Tigress Financial Partners Ivan Feinseth said in his daily newsletter. Ongoing investments to gain share in online sales is proving to be more expensive than originally expected.

"I believe further downside exists in Kroger as grocery retail continues to change and challenge the position of traditional food retailers like Kroger," Feinseth wrote.

Benzinga's Take

Kroger's business model of operating a traditional grocer retailer worked 10 years ago. Now that it competes with the likes of Target (NYSE: TGT) who has its own private label brand, how can old-school Kroger compete against new age "hip" Target?

After falling in Thursday's session, shares of Kroger were trading higher by 1.3% to $27.17 at time of publication.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Photo by Virginia Retail/Wikimedia.

Latest Ratings for KR

Date Firm Action From To
Dec 2019 Reiterates Hold
Dec 2019 Maintains Outperform
Nov 2019 Upgrades Sell Hold

View More Analyst Ratings for KR
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