The Kroger Company
) stands tall amid nagging economic woes and an uneven recovery.
We maintain our Neutral recommendation on this stock that has
shown resilience over time.
Why the Reiteration?
We believe that a dominant position among the nation's largest
grocery retailers enables Kroger to sustain top-line growth,
expand its store base, and boost market share. The company is
also well positioned to deliver higher earnings primarily through
strong super market sales (sans fuel) growth. This is well
defined from the stock's Zacks Rank #2 (Buy) and evident from its
fourth-quarter fiscal 2012 results.
The quarterly earnings of 88 cents a share beat the Zacks
Consensus Estimate of 70 cents, and rose from 50 cents in the
year-ago quarter. Total sales climbed 12.8% during the quarter.
Buoyed by better-than-expected results, management now envisions
fiscal 2013 earnings between $2.71 and $2.79 per share,
reflecting year-over-year increase of 8% to 11%, which is
equivalent to the company's long-term growth rate. Identical
supermarket sales are expected to elevate between 2.5% and 3.5%
during the fiscal year.
Kroger is also actively managing its capital and returning
much of its free cash to shareholders via share buybacks and
dividends. Moreover, management continues to deploy capital to
concentrate more on remodels, merchandising, and other viable
The economy is not devoid of risks, and Kroger is not immune
to such adversities. The intensifying price war among grocery
stores to lure budget-constrained consumers may adversely impact
Kroger's sales and margins. The recent economic downturn has
transformed the way consumers used to shop. Cash-strapped
consumers are now prioritizing their purchases, choosing cheaper
substitute brands and shopping for groceries at low-price
Further, higher debt-to-capitalization ratio remains a major
concern. Kroger ended fourth-quarter fiscal 2012 with a total
long-term debt of $8,879.2 million, reflecting a
debt-to-capitalization ratio of 67.8%, which is substantially
higher, and could adversely affect the company's credit
worthiness and make it more susceptible to the macro-economic
factors and competitive pressures.
Other Stocks Worth Considering
Other stocks worth considering in the food and miscellaneous
diversified sector include
J&J Snack Foods Corp.
) , which holds a Zacks Rank #1 (Strong Buy) and
Kraft Foods Group, Inc.
Campbell Soup Company
), both of which carry a Zacks Rank #2 (Buy).
CAMPBELL SOUP (CPB): Free Stock Analysis
J&J SNACK FOODS (JJSF): Free Stock Analysis
KROGER CO (KR): Free Stock Analysis Report
KRAFT FOODS GRP (KRFT): Free Stock Analysis
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