For Kroger, Food Deflation Headwinds Subside As Wal-Mart Competition Picks Up

In anticipation of Kroger Co KR's Q3 report on Thursday, BMO Capital Markets analyst Kelly Bania maintains a Market Perform rating and a $35 price target for the food retailer, while slightly adjusting her thesis.

Analyst's Take

The analyst downgraded the stock in August to address the accelerating food deflation. Although Bania anticipates the deflation turning around following October’s trough and deceleration is likely, the increased volume Wal-Mart Stores, Inc. WMT has gained may be a headwind for Kroger and other food retailers.

“We believe the competitive dynamics from industry-leader WMT may be shifting,” said Bania. “This analysis suggests that Wal-Mart’s implied grocery volumes have accelerated in the past few quarters.”

At time of writing, shares of Kroger were trading down by more than 1 percent at $33.28.