Market Overview

Deutsche Bank: The Kroger Co. Could Grow Its Earnings In Any Environment


If food inflation begins to slow down or even become deflationary, The Kroger Co. (NYSE: KR) is still in position to achieve its long-term growth target of 8 percent to 11 percent per year, according to Karen Short of Deutsche Bank.

In a note to clients on Tuesday, Short focused on three distinct periods to justify the thesis.

The first period Short analyzed was the past eight to 10 years. The analyst concludes there was a “relatively low” correlation between food inflation and Kroger's financial metrics.

The second time period during 2004 to 2008 showed a negative correlation between food inflation and Kroger's financial metrics.

Finally, during the post-recession period, Short concluded there was a high positive correlation between food inflation and non-fuel identical store sales.

According to Short, food deflation fears are “overdone” despite the USDA expecting Food-at-Home inflation to rise 2.5 percent to 3.5 percent in 2014 and then deflate to 2 percent to 3 percent in 2015.

“Even if inflation were to moderate more sharply or even turn we negative, we do not expect Kroger's non-fuel identical store sales to turn negative given the company's strong track record of tonnage growth/market share gains,” Short wrote.

Bottom line, the analyst emphasizes the belief that Kroger should not expect any material impact on EBIT growth or earnings per share growth due to a slowdown in food inflation.

Shares are Buy rated with a $57 price target.

Latest Ratings for KR

Nov 2019UpgradesSellHold
Nov 2019MaintainsOutperform
Oct 2019DowngradesBuyHold

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Posted-In: Deutsche Bank Inflation Karen Short Kroger USDAAnalyst Color News Analyst Ratings


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