Bernstein: How Kroger Could See Activist Involvement

Grocery chain Kroger Co KR is scheduled to report second-quarter results Sept. 12, and a poor performance could result in an activist investor taking interest in the name, according to Bernstein.

The Analyst

Brandon Fletcher maintained an Outperform rating on Kroger. 

The Thesis

The Street has a "generally low" outlook for Kroger, with the Street calling for comps to rise 1.6%, while Bernstein's estimates are higher at 2%, Fletcher said in a note. (See his track record here.) 

If the company's report falls near the Street's estimate, it will make Kroger's annual guidance of 2% to 2.5% annual growth more "challenging," as first quarter comps came in at 1.5%, the analyst said. 

Kroger could see some benefits from stabilizing operating margins, as the Consume Price Index offers some "continued relief," while alternative revenue streams contribute more, he said. 

If the grocery chain disappoints versus the already low bar or the stock shows an overreaction to "lukewarm results," activist investors could take advantage, Fletcher said. 

An activist investor could be tempted to "make a move" and not only offer downside protection to the stock, but upside potential "well above" current levels, the analyst said. 

Price Action

Kroger shares were up 2.19% at $24.53 at the time of publication Wednesday. 

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