Deutsche Bank Raises Forecast On Kroger

Deutsche Bank adjusted its forecast on The Kroger Co. KR Thursday and maintained a Buy rating and a $65 price target.

Analysts led by Karen Short noted that “KR reported adj. EPS of $0.69, which came in $0.07 above our $0.62 est. Higher fuel margins were a significant tailwind (we est. ~ $0.18 EPS benefit from $0.232 fuel margins vs. a normalized $0.13 fuel margin), partly offset by LIFO headwinds. Non-fuel ID’s were up +5.6 percent, the best result in over 5 yrs.”

Short observed that “Sales strength was broad-based across departments and geographies, as KR continues to execute against its Customer 1st strategy, which is leading to consistent share gains. Importantly, the sales strength has continued 4Q-to-date.

“KR raised FY EPS guidance as the core business continues to perform very well and strong fuel profitability is offsetting LIFO headwinds. If gasoline margins normalize, management expects EPS growth for next year to be at the low-end of +8-11 percent LT goal. Net, KR’s shares have performed very well YTD (+53.9 percent vs. +12.1 percent for S&P), and we see further upside given our expectation for continued share gains and steady earnings growth for years.”

Short concluded by “raising our ‘15E EPS to $3.42 from $3.33. We are also raising our ‘16E EPS est to $3.70 (from $3.68), which represents +8.2 percent y/y growth.”

The Kroger Co. closed Thursday at $60.76, up 3.58 percent.