Technology

Buy Kroger (KR) Stock for Big Retail's Pandemic Growth and Safety?

Kroger KR shares have outpaced Target TGT, Walmart WMT, and its industry over the last 12 months. And the grocery chain sits right near its new highs after its fellow retail giants posted strong second quarter results recently, boosted by heavy spending during what will hopefully be the worst stretch of the pandemic.

Pandemic Highlights Growth Initiatives …

Kroger is the largest supermarket chain in the U.S. and it has spent the last several years working to expand its e-commerce business, like nearly everyone else in the retail industry. These efforts include expanded online pick-up and delivery offerings.

The company claims that it currently offers pick-up options at over 2,000 locations and delivery from 2,400, reaching 97% of its customers. Investors should also note that Kroger has invested in and partnered with U.K.-based tech-focused grocer Ocado to help KR build a network of automated warehouses.

On June 18, Kroger topped our first quarter estimates, with sales up roughly 12% and 19% without fuel. Perhaps more importantly, the company’s digital segment soared 92% for the three-month period ended on May 23. “Our digital delivery and pickup business in the last two months grew triple digits and continues to grow at that,” CEO Rodney McMullen said on KR’s first quarter earnings call.

 

 

 

 

 

 

 

 

 

 

 

Other Fundamentals

Shares of Kroger have popped 24% in 2020 to top its industry’s 1% climb and sit at around $36 per share. This has helped push KR 52% higher in the past 12 months. Despite the recent strength, Kroger still has about 12% more room to run before it hits its 2015 highs.

Kroger currently trades at 0.21X forward 12-month sales, which marks a big discount against its industry’s 0.49X average and Walmart’s 0.67X. The stock trades at a similar discount in terms of forward sales as well.

Investors will also be pleased to know that the firm announced on June 25 that it raised its quarterly dividend by 13%. Kroger’s 2.0% yield tops its industry’s 1.54% average and Costco’s COST 0.81%. And its 24% payout ratio gives it the ability to continue to raise its dividend.

Looking ahead, our Zacks estimates call for Kroger’s second quarter revenue to pop 5.3%, with its full-year sales expected to climb 5.7%. Meanwhile, its adjusted earnings are expected to surge 13.6% to help lift its FY20 figure by over 29%.

Bottom Line

Kroger’s longer-term positive earnings revisions help it grab a Zacks Rank #2 (Buy) at the moment. KR also boasts “A” grades for Value and Growth in our Style Scores system, and the stock is part of a highly-ranked Zacks industry.

Furthermore, Wall Street has continued to show love for stocks that are able to expand during the pandemic, of which Kroger is certainty one.

Kroger is expected to release its second quarter financial results on September 10.

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Target Corporation (TGT): Free Stock Analysis Report

Walmart Inc. (WMT): Free Stock Analysis Report

Costco Wholesale Corporation (COST): Free Stock Analysis Report

The Kroger Co. (KR): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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