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Why Kroger May Not be Worth Adding to Portfolio in 2017

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Grocery chains are going through a rough patch, and The Kroger Co.KR is not an exception to the trend. The company's shares have declined roughly 16.1% in the past one year, underperforming the Zacks categorized Retail-Supermarkets industry that witnessed an increase of 8% in the same time frame. Moreover, the chances of a rebound in the stock price seem minimal as the industry occupies a space in the bottom 50% of the Zacks Classified industries.

Analysts believe that industry-wide weakness is hurting margins of the supermarket chains. Stiff competition, food price deflation, an aggressive promotional environment and waning store traffic are the primary headwinds plaguing the providers of daily need items. Nevertheless, Kroger in order to improve sales is introducing new items and digital coupons, and taking initiatives such as order online, pick up in store. The company is now providing ClickList and ExpressLane online ordering services in over 550 locations.

However, industry experts believe that these will take time to reap benefits. We noted that Kroger succumbed to a negative earnings surprise in the third quarter, following an earnings beat in the preceding two quarters of fiscal 2016. Further, the company barely extended its identical supermarket sales growth (excluding fuel) for about 52-successive quarters. The tough operating environment compelled management to narrow its fiscal 2016 earnings projection and provide a bleak outlook for fiscal 2017.

Management expects adjusted earnings in the band of $2.10 to $2.15 per share compared with previous range of $2.10 to $2.20. Kroger projects fiscal 2017 earnings per share growth to be below the low end of its long-term growth rate target of 8% to 11%.

Zacks Rank & Stocks Worth Considering

Kroger currently carries a Zacks Rank #4 (Sell). Investors may consider better-ranked stocks such as B&G Foods, Inc. BGS flaunting a Zacks Rank #1 (Strong Buy), and Omega Protein Corporation OME and Pinnacle Foods Inc. PF carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

B&G Foods delivered an average positive earnings surprise of 12.2% in the trailing four quarters and has a long-term earnings growth rate of 8%.

Omega Protein delivered an average positive earnings surprise of 9.8% in the trailing four quarters and has a long-term earnings growth rate of 8%.

Pinnacle Foods delivered an average positive earnings surprise of 2.1% in the trailing four quarters and has a long-term earnings growth rate of 6.5%.

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KROGER CO (KR): Free Stock Analysis Report

PINNACLE FOODS (PF): 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.


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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