Wells Fargo Raises Estimates On Kroger As Grocer Ramps Up E-Commerce, Meal Prep

With e-commerce growing in the competitive grocery sector, investors remain “understandably skeptical” of Kroger Co KR, but the Cincinnati-based company is well-positioned, according to Wells Fargo.

The firm raised its 2017 EPS estimate on Kroger from $1.96 to $1.98 after meeting with chief financial officer, Mike Schlotman. Wells Fargo maintains an Outperform and $28 price target on Kroger.

The “quickly-changing” environment favors competitors like Kroger that can compete on price and adapt to changing consumer tastes, senior analyst Zachary Fadem said in a Thursday note.

The analyst compared Kroger’s recent guidance — which indicated the company’s intention to invest in price, associate wages and e-commerce — to the Wal-Mart Stores Inc WMT playbook at that company’s 2015 investor day.

The strategy “proved to be the right decision and an attractive long-term entry point for the shares,” Fadem said.

A Competitor’s View On Amazon, Whole Foods

Customer insight is a valuable component of the Amazon.com, Inc. AMZN purchase of Whole Foods Market, Inc. WFM, but “skepticism remains around WFM’s ability to solve AMZN’s last mile delivery issues, particularly for fresh and perishable products,” Fadem said.

Consolidation and M&A activity remains a top concern in the grocery sector, with more than 85 store closures announced nationwide year to date, according to Wells Fargo.

Kroger is making its own plays in grocery delivery and meal prep, offering “Click and Collect” in about 25 percent of stores, Fadem said. The program allows customers to pick up online orders in-store for $4.95, with the first two orders being free.

The grocer’s meal kit launch “offers growth potential, with encouraging results for Prep+Pared offerings in Cincinnati test stores,” Fadem said, adding that Kroger is testing delivery via Uber, Shipt, Instacart and other providers.

Related Links:

Kroger Won't Have It Easy Over The Next Few Years, But Others May Struggle More 

Analyst: Kroger Should Outmuscle Amazon And Bid For Whole Foods