The Kroger Company
) has watched all 12 earnings estimates for 2012 move higher in the
last 7 days, after this grocery retailer raised its full-year
earnings guidance during its third-quarter report. With a decent
dividend yield of 2.5%, an impressive guidance for 2012 and a
long-term expected earnings growth rate of 9.1%, this Zacks #2 Rank
(Buy) offers an attractive investment opportunity for investors
seeking both growth and income.
Strong Third Quarter
On November 29, Kroger reported third-quarter earnings of 46 cents,
beating the Zacks Consensus Estimate by 7.0% and last year's
earnings by 39.4%. This marked the fourth straight quarter with a
positive earnings surprise. Favorable cost management and share
repurchase activities aided the bottom-line improvement.
Total revenue grew 5.9% year over year to $21.8 billion in the
quarter, which was ahead of the Zacks Consensus Estimate of $21.7
billion. This performance benefited from positive identical
supermarket sales growth and expansion of stores. The company's
identical supermarket sales grew 3.2% to $16.1 billion, marking the
36th successive quarter with an increase.
Kroger's healthy results prompted management to raise the outlook.
The company now expects 2012 earnings between $2.44 and $2.46 per
share, up from the earlier forecast of $2.35 to $2.42.
Kroger's customer-centric business model provides a strong value
proposition to consumers. It is well positioned to continue its
growth momentum primarily through identical supermarket sales
growth. The company expects identical supermarket sales growth
between 3.0% and 3.5% in the fourth quarter of 2012.
Kroger has been increasing its dividend every year since 2006. The
company increased its quarterly dividend in September by 30%,
bringing the annualized payout to 60 cents per share from the
earlier level of 46 cents. The quarterly dividend increased from
11.5 cents to 15 cents, reflecting a decent annual dividend yield
Surge in Earnings Estimates
Over the past 7 days, all 12 estimates for 2012 were revised
upward, lifting the Zacks Consensus Estimate by 2.5% to $2.47 per
share. This indicates year-over-year growth of 26.2%. The Zacks
Consensus Estimate for 2013 increased by 1.5% to $2.63 per share as
13 of 19 estimates moved upward. This reflects a year-over-year
increase of 6.5%.
Kroger currently trades at a price-to-sales (P/S) multiple of 0.15,
reflecting a 34.8% discount to the peer group average of 0.23. In
addition, the stock looks attractive as it has a trailing 12-month
return on equity (ROE) of 31.9%, much above its peer group average
Chart Showing a Consistent Advance
Shares of Kroger have been consistently rising since mid-September
2012 and jumped steeply following the third quarter results.
Moreover, the stock is currently trading above its 200-day and
50-day moving averages, which stand at $23.07 and $24.40,
respectively. Volume is strong, averaging roughly 4,565K daily.
Kroger has outperformed the S&P 500 over the last 3 months.
Based in Cincinnati, Ohio, Kroger is a retailer, manufacturer and
processor of variety of food for sale in its supermarkets. It
operates retail food and drug stores, multi-department stores,
jewelry stores, and convenience stores throughout the United
States. The company currently has a market cap of $13.8 billion.
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