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The Street's Mixed Reaction To Buffett's $550M Kroger Bet

Jayson Derrick

Legendary investor Warren Buffett and his Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) disclosed a $549.1-million stake in grocery chain Kroger Co (NYSE: KR) but not all Street analysts are convinced it's a wise investment.

What Happened

Shares of Kroger inched higher Friday after Berkshire's 2.37% stake in Kroger was confirmed. Some analysts are questioning what Buffett sees in the grocery chain, which has been shedding market share since 2016.

Jefferies analyst Christopher Mandeville said his firm finds itself "on the opposite side of a debate" with Berkshire. The grocery chain's streak of losing market share is approaching four years, return on invested capital has fallen 400 basis points over the past five years and the company's overall long-term appeal is lacking, the analyst said.

Why Not Buy Kroger Outright?

Mandeville offered some "food for thought" and said that if Buffett is indeed a Kroger bull , he questioned why the CEO would not allocate a "fraction" of Berkshire's $128 billion in cash to buy the company outright, according to Supermarket News.

The opposite side of the trade hinges on giving Buffett the benefit of the doubt given his multi-decade-long track record of success.

"We don't know if it's Warren Buffett or some of the other portfolio managers that made this investment," Supermarket News quoted Oppenheimer analyst Rupesh Parikh as saying. "But it's a clear positive to have Warren Buffett involved, and it definitely helps the stock from a support perspective."

Analyst 'Far Less Concerned' By Amazon's Disruption

The competitive environment for Kroger may not be as intense as previously thought.

Mandeville said Amazon.com, Inc.'s (NASDAQ: AMZN) supposedly futuristic model of grocery stores are showing zero evidence of automation for online order fulfillment.

"If this is the model that the online giant intends on rolling out, then we're far less concerned by the level of disruption Amazon brings to the grocery world," the analyst wrote.

Related Links:

Warren Buffett's Berkshire Hathaway Trims Apple Stake, Buys Into Kroger, Biogen

Q4 13F Roundup: How Buffett, Einhorn, Ackman And Others Adjusted Their Portfolios

Photo by Virginia Retail via Wikimedia.

Latest Ratings for KR

Date Firm Action From To
Jan 2020 Maintains Equal-Weight
Dec 2019 Upgrades In-Line Outperform
Dec 2019 Reiterates Hold

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