It's time to go shopping with
The Kroger Company
(
KR
).
This Zacks #2 Rank (Buy) grocery store giant recently delivered its
third consecutive positive earnings surprise and raised its profit
guidance for fiscal 2012, prompting analysts to revise their
estimates higher. On top of the favorable earnings trend, Kroger
offers investors a growing dividend - currently yielding a solid
2.0% - and reasonable valuation.
Amid uncertainty in the financial markets and interest rates close
to all-time lows, this well-known household name looks like a solid
pick for investors seeking both growth and income.
Strong Start to 2012 & Guiding Higher
Kroger reported fiscal first quarter (ended May 19) earnings per
share of 78 cents on June 14, beating the Zacks Consensus Estimate
by 8% and the year-ago earnings by 11%.
The results were driven by a 4.2% gain in same-store sales - a key
indicator of a retailer's health - representing the 34th straight
quarter with an increase. Its continued emphasis on a
customer-centric business model also helped. Share repurchase
activities provided further cushion to the bottom line, which grew
ahead of Kroger's long-term goal of 6% to 8% growth.
In addition to delivering a high single-digit earnings surprise,
Kroger raised its full year earnings guidance. The company expects
earnings per share for fiscal 2012 between $2.33 and $2.40, up from
the previous guidance of $2.28 to $2.38.
Shareholder Friendly Capital Deployment
Kroger pays a dividend that yields a healthy 2.0%. The nation's
biggest supermarket chain has raised its dividend every year since
it began paying in 2006.
In fiscal 2011, Kroger spent a whopping $1.5 billion in buying back
66.5 million shares of its stock. The company has been continuing
the share buyback activity in 2012 as well and already spent $345.3
million for repurchasing 14.6 million shares during the fiscal
first quarter. Importantly, Kroger recently announced a new $1
billion share repurchase plan to replace the prior authorization
that expired on June 12, 2012.
Estimates Move Higher
Based on Kroger's ability to increase sales and market share, the
full year Zacks Consensus Estimate for fiscal 2012 is up 6 cents
(or 3%) to $2.38 over the last 30 days. Next fiscal year's average
forecast is up 3 cents (or 1%) to $2.52. Given the $1.96 per share
earned in fiscal 2011, the projected growth rate stands at 21% for
fiscal 2012. If the company hits the estimate in fiscal 2013, the
annual growth rate will be 6%.
Reasonable Valuation
Shares of Kroger are going for about 9.6 times forward estimates,
on par with the peer group average. Though the price-to-book ratio
of 3.1 is significantly above the average of 1.8 offered by similar
companies, Kroger's trailing 12-month return on equity (ROE) of
25.8% is much better than its peer group average of 18.1%.
Chart Shows Estimate Growth
Below one can see the long-term earnings trend for Kroger. Analysts
are increasingly bullish on the company, which is reflecting in
their earnings estimates. In particular, with the price and
consensus chart demonstrating incrementally increasing consensus
estimates for fiscal 2012 and 2013, shares could keep climbing
higher.
Cincinnati, Ohio-based The Kroger Company is one of the largest
grocery retailers in the U.S., operating 2,425 supermarkets and
multi-department stores in 31 states under approximately 24 local
banners. In addition, Kroger runs 789 convenience stores, 337 fine
jewelry stores, 1,109 supermarket fuel centers, and 38
food-processing plants.
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KROGER CO (KR): Free Stock Analysis Report
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