Argus Reaffirms Buy Rating On Kroger, Thinks Creative Strategies Will Help Drive Market Share

On September 9, Kroger Co KR reported a 7 percent increase in its adjusted earnings for fiscal Q2 to $0.47, beating the consensus and the estimate.

Argus’ Chris Graja maintains a Buy rating on the company, but lowered the price target from $45 to $43.

Graja explained that the price target had been reduced to reflect the impact of price deflation on the sales, margin and EPS estimates.

Guidance Lowered

The analyst, however, also mentioned that Kroger reported its comparable sales for fiscal Q2 below consensus, while management lowered its earnings guidance, driven by price deflation in products such as cheese, eggs and milk.

Related Link: Market Winners And Losers As Food Deflation Persists

“Management’s discussion of customer spending had a more cautious tone than we have heard in quite a while. Insights from customers suggest ‘a gradual tightening of budgets,’ with customers less confident about the economy than they were three months ago,” Graja stated.

Positive ‘11-Year Streak’

The analyst expects Kroger to continue to use innovative strategies to prolong its “11-year streak” of gaining market share and 51 quarters of growing identical sales.

Graja also pointed out that management had been able to deliver on its long-term target of EPS growth of 8–11 percent that had been set in October 2012.

The analyst added, “[M]anagement’s focus on delivering value to shoppers will continue to boost market share in an economic environment that is still challenging for many customers.”

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