Kroger Could Unleash A Handful Of Value Drivers Very Soon

Kroger Co KR may ramp up its Mariano's, Main & Vine and Ruler Foods formats in the near term, unlocking incremental value of as much as $12 per share, or ~40 percent of the current share price, Morgan Stanley’s Vincent J Sinisi said in a report. He maintains an Overweight rating on the company with a price target of $40.

With its “forward-looking venture concepts,” Kroger may be able to create “significant, underappreciated value,” analyst Sinisi commented.

Related Link: Kroger Buying Whole Foods Would Be "Uncharacteristic," Says Citi

Growth Drivers

Specialized concepts are likely to be the growth drivers in food retail in the future. Kroger is capitalizing on these vital trends through its emerging store formats. Sinisi mentioned that the greatest potential seems to be in:

1. Mariano's: This is an “Urban Upscale” format that focuses on prepared, specialty foods.
2. Main & Vine: This offers fresh foods in a small-box format.
3. Ruler Foods: This is Kroger's hard discount or deep value format.

“We believe KR has the customer knowledge, infrastructure, and capital in place to meaningfully scale these concepts,” the analyst pointed out. He added, “We see $4 of incremental value in a Bull Case where KR expands these concepts and $12in an Extreme Bull Case where 'Venture Concepts' reach full scale potential.”

At last check, Kroger was up 2.13 percent at $29.67.

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