Kroger KR is set to report its first quarter fiscal 2020 financial results on Thursday, June 18, well after some of its peers such as Target TGT and Walmart WMT flexed their muscles during the coronavirus lockdown period. The grocery giant’s shares have outpaced its rivals in 2020 and its fourth quarter results showcased its early pandemic strength.
Kroger’s Quick Story
Kroger is one of the country’s largest supermarket operators and it has spent the last several years trying to beef up its e-commerce business in an effort to keep up in an Amazon AMZN-obsessed retail age. KR has expanded its pickup locations to 1,989, while its delivery locations reached 2,385. This covered what is calls 97% of Kroger households, and helped its fiscal 2019 digital sales jump 29%.
Kroger has also invested in and partnered with U.K.-based tech-focused grocer Ocado to help KR build a network of automated warehouses to boost its e-commerce and delivery offerings. “We are roughly a year away from our first fully functional customer fulfillment center with Ocado in Monroe, Ohio. These facilities will accelerate our ability to provide customers with a seamless experience in a much more cost-effective way,” CEO Rodney McMullen said on its Q4 earnings call.
KR and Ocado then on June 5 announced plans to construct “three new Customer Fulfillment Centers in the Great Lakes, Pacific Northwest and West regions.”
On the coronavirus front, the firm noted on its March 5 call that is was already seeing “customers starting to spend more on things like water and hand sanitizer, hand soap, paper, and then some of the maybe the box dinners and soups.” Kroger then announced on April 1 that was “seeing strong sales” and investing in its “business to support our customers and associates through the current uncertainty.” The company also said it saw potential for a “long-term shift in customer behavior toward eating more food at home.”
The nearby chart shows that KR stock has easily outpaced Walmart and its industry over the last 12 months, up 33% against its industry’s 4% climb. More recently, Kroger shares have jumped over 13% in 2020.
The stock closed regular trading Thursday up +0.40%, which was no easy task given the massive selloff, at $32.70 a share. This marks a slight discount against its 52-week highs. And investors should note that Kroger still rests nearly 20% below its 2015 highs, which could give the stock additional runway if it’s able to impress Wall Street.
Kroger currently trades at 0.22X forward 12-month sales. This represents a solid discount against its industry’s 0.50X average. KR’s 1.96% dividend yield top its industry’s 1.78% average and double’s Costco’s COST 0.93%. Plus, its 29% payout ratio gives it the ability to continue to raise its dividend. Kroger also holds “A” grades for both Value and Growth in our Style Scores system.
Our current Zacks estimates call for Kroger’s Q1 revenue to jump 7.7% to come in at $40.12 billion. This would easily top last quarter’s 2.1% top-line expansion. Meanwhile, its adjusted quarterly earnings are projected to pop 23.6% to $0.89 a share.
Peeking further ahead, Kroger’s adjusted fiscal 2020 EPS figure is projected to climb 12.3% on the back of 3.6% higher revenue. KR has also seen its earnings revisions trend upward since it reported its fourth quarter results.
This positivity helps Kroger hold a Zacks Rank #2 (Buy) right now. Clearly, playing stocks for near-term gains around earnings is always risky, especially amid the recent market conditions. That said, longer-term investors might want to take a chance on Kroger for its digital expansion plans, dividend, and more. And let’s not forget that consumers might not rush back to restaurants even as the economy starts to reopen.
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