Proceed With Caution In Kroger

On Friday, Credit Suisse issued a company note on The Kroger Co

saying that while Kroger is "a long-term structural winner" investors should proceed with caution. Currently, Credit Suisse rates Kroger as Neutral and lowered their price target from $40 to $36. Edward Kelly, Judah Frommer, and Stephanie Chang, analysts at Credit Suisse wrote, "KR has successfully transformed itself into a sustainable share gainer within the ultra-competitive food retail industry….That being said, we believe the stock carries underappreciated risk heading into 2016...we see the current risk/reward as unfavorable." Kroger has had success growing their top line in 2015 as gains in the natural/organics category and strength in company-owned brands which have higher margins increased. One of the biggest negative catalysts that can hurt Kroger in 2016 is deflation, which Credit Suisse analysts believe could accelerate in the next few months. Furthermore, analysts see risks in fuel prices which have boosted Kroger's earnings in the past few quarters as customers have had increased disposable income to spend on groceries. If and when oil prices increase, analysts are concerned about a large correction in Kroger's earnings as customers will spend less at the stores and choose lower margin items. Kroger is currently trading at $37.15, even for the day.