Kroger Investors May Have Already Set Their Expectations Lower

Ahead of the earnings announcement on Friday by Kroger Co KR, Deutsche Bank believes investor expectations are lower based on companies that reported earnings in the last six weeks. However, that did not deter analyst Shane Higgins from maintaining a Buy rating with a price tag of $41 on the company's shares.

Street analysts have reduced their EPS estimates from $0.47 ninety days ago to $0.46 thirty days back and to $0.45 seven days ago. In the last four quarters, the retailer's EPS has exceeded the estimates by 1.4 percent to 10.3 percent.

Related Link: Kroger Is A Casualty Of The Grocery Price War

The brokerage thinks investor sentiment is "very cautious," pointing out that the stock dropped 25.1 percent year-to-date compared to the 7 percent gain recorded by the S&P 500. The analyst thinks this is mainly due to several rivals reporting weaker-than-expected comps over the last six weeks.

In a research note, the analyst said, "We continue to view KR as well-positioned to gain share and to achieve its +8–11 percent EPS target over time, supported by continued execution of its Customer 1st strategy and its many competitive advantages."

The brokerage found intensified deflation headwinds in the second quarter with Kroger's non-fuel IDs running below the mid-point of the 2.5–3.5 percent outlook. The analyst thinks that the company's gain could be modest from the Memorial Day shift.

Deutsche Bank sees pressure on full-year outlook based on the recent trends like weak fuel margin. Earlier, the company guided EPS to the low- to mid-point of its $2.19–$2.28 for the full year.

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