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Kroger's Turnaround: No One Said This Was Going To Be Easy

Kroger's Turnaround: No One Said This Was Going To Be Easy
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By most accounts, Kroger Co (NYSE: KR) isn’t really a standout in the grocer league. The firm reported in-line earnings per share and a marginal revenue beat Friday, but lately it’s done little to draw eyes from all-star rivals.

“Competition remains intense, led by Wal-Mart Stores Inc (NYSE: WMT)’s price investments and better execution and the ongoing expansion of hard discounters (Aldi, Lidl),” Deutsche Bank analyst Shane Higginswrote in a Monday note. “ (NASDAQ: AMZN)’s acquisition of Whole Foods will not make for an easier environment in 2018.”

Between such opposition and Kroger’s “surprisingly modest” second-half guidance for non-fuel ID, Higgins expects sales and earnings growth below historical averages for the next two years.

He downgraded Kroger to a Hold with a $21 price target.


Competitive Potential

In some cases, the fierce grocery field may play to Kroger’s advantage.

“We continue to believe that KR is well-positioned to gain share from the many weaker competitors in the market who are likely to close doors over time,” Higgins wrote. “However, we expect store closings and acquisitions to be sporadic and will likely play out over the next several years.”

At the same time, Kroger is expected to accelerate investments in customer experience trends such as e-commerce.

“[This] will be critical in positioning the business for long-term growth during a period of rapid change in the U.S. food retail landscape where the lines between traditional grocers, online competitors, discounters and restaurants are becoming increasingly blurred,” Higgins wrote.

Deutsche Bank foresees low single-digit growth in earnings before interest, tax, depreciation and amortization (EBITDA) over the next few years accompanied by a below-average multiple.

After the stock waned a full 7.5 percent Friday, Kroger opened Monday at $21.06.

Related Links:

Has Kroger Shelved Its Sales Struggles? A Q2 Preview

Contrarian: Amazon Is One Of The Weakest Retailers There Is


Image Credit: By WhisperToMe - Own work, CC0, via Wikimedia Commons

Latest Ratings for KR

Feb 2019BuckinghamInitiates Coverage OnUnderperform
Dec 2018Credit SuisseMaintainsOutperformOutperform
Oct 2018JefferiesMaintainsBuyBuy

View More Analyst Ratings for KR
View the Latest Analyst Ratings

Posted-In: Aldi Deutsche Bank GroceryAnalyst Color Downgrades Price Target Top Stories Analyst Ratings Best of Benzinga


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