Shares of The Kroger CompanyKR , one of the largest grocery retailers, hit a 52-week high of $74.97 yesterday, before eventually closing at $74.31, up 6.7% from the previous day's session. The company's impressive fourth-quarter fiscal 2014 performance provided much impetus to this stock, which carries a Zacks Rank #2 (Buy).
Yesterday, Kroger posted quarterly earnings of $1.04 per share that beat the Zacks Consensus Estimate and surged 33.3% from 78 cents earned in the prior-year quarter, aided by its Customer 1st strategy, increase in sales and strong fuel margins. The acquisition of Harris Teeter also supported the bottom line.
Total sales (including fuel center sales) grew 8.5% to $25,207 million from the prior-year quarter, and also came ahead of the Zacks Consensus Estimate of $25,048 million. Management stated that excluding fuel center sales, total sales rose 14.2%.
The better-than-expected results prompted management to provide an upbeat outlook. The Cincinnati-based Kroger now projects fiscal 2015 earnings between $3.80 and $3.90 per share. The current Zacks Consensus Estimate for fiscal 2015 is pegged at $3.71, which could witness an upward revision in the coming days.
The company's primary strength is its earnings surprise history. In the trailing 14 quarters, Kroger has beaten the Zacks Consensus Estimate in 13 quarters while being in line with the consensus in only one. The average earnings beat over these 14 quarters comes to an impressive 7.2%, including about 16% in the recently reported quarter.
The company has significant opportunities to augment identical supermarket sales, alleviate gross margin pressure, improve operating margin and enhance return on invested capital. Moreover, management continues to deploy capital to concentrate more on remodels, merchandising and other viable projects.
We believe that this is the right time to add the stock to your portfolio, if not yet, as it looks very promising. Moreover, the underlying factors are capable of carrying the momentum further. The strong fundamentals, along with the company's long-term earnings per share growth rate of 11.4%, could prove to be a solid bet for investors.