Portfolio Position: Kroger Company (NYSE:KR)
Kroger operates over 2,790 retail food stores alongside pharmacies, fine jewelry, health clinics and food production facilities.
The company's share price has suffered in the past 2 years on behalf of rising concern of stiff competition and recently on the news of Amazon buying Whole Foods, being seen by analysts as having the most to lose from the tech behemoth's foray into the mass market supermarket grocery industry.
Favorable Factors Impacting Kroger:
Individual Royalties
Kroger has faced off competition with smart pricing performance to enhance their competitive edge and works on expanding stores and facilities to penetrate new markets.
Acquisition Synergies
The company has worked to grow inorganically through strategic acquisitions that fit their grocery and in-store pharmacies, like their recent ModernHEALTH acquisiton.
Foreign Currency
Kroger should benefit from the recent descent in the value of the USD creating a better imports environment and reducing purchasing power for the US Consumer.
Low Inflation
Besides boosting assets prices vs. consumer goods prices, forces retail companies to favor cash hording instead of capital investment. Kroger has seen this effect as stagnant product price growth has limited its natural growth factors and lowered investment.
Oil Prices
The historically low price of oil throughout 2016 and 2017 has been good for retail companies with lower delivery and transportation costs and higher spending by the US Consumer, who look to spend the money saved at the pump with lower gasoline prices. This factor has favorably influenced Kroger's sales and, with oil prices expected to remain relatively low, will remain a favorable condition in the years to come.
Investment Risks:
Competition
Kroger's number 1 risk is competition. With Amazon's
AMZN recent acquisition of Whole Foods there is worry that customers will be drawn away. This is evident by recent reports of traffic monitoring firms, yet I believe these fears are overdone and pricing will remain the major driver and not brand recognition. The company's strong eCommerce capabilities will battle Amazon's Whole Foods.
Pricing Pressure
The company's efforts to compete by lowering prices hurt their bottom line, shrinking 2016 EPS over 30% and 2017 EPS over 11%. Although management has committed to cutting costs and boosting operational efficiency, it's hard to see significant upside until eCommerce maturation.
Conclusion:
I believe the company is way undervalued at current levels.
While you wait, the company pays an easily sustainable 0.125/quarter dividend, amounting to a 2.43% annual yield.
I'm starting the company with a $30 price target into Q2 2018 with a Strong Buy.
Ultimately down the line, I believe Kroger will conservatively be trading over 45/share.
For the full article: seekingalpha.com/article/4105825-kroger-biggest-loser-overreaction
The company's share price has suffered in the past 2 years on behalf of rising concern of stiff competition and recently on the news of Amazon buying Whole Foods, being seen by analysts as having the most to lose from the tech behemoth's foray into the mass market supermarket grocery industry.
Favorable Factors Impacting Kroger:
Individual Royalties
Kroger has faced off competition with smart pricing performance to enhance their competitive edge and works on expanding stores and facilities to penetrate new markets.
Acquisition Synergies
The company has worked to grow inorganically through strategic acquisitions that fit their grocery and in-store pharmacies, like their recent ModernHEALTH acquisiton.
Foreign Currency
Kroger should benefit from the recent descent in the value of the USD creating a better imports environment and reducing purchasing power for the US Consumer.
Low Inflation
Besides boosting assets prices vs. consumer goods prices, forces retail companies to favor cash hording instead of capital investment. Kroger has seen this effect as stagnant product price growth has limited its natural growth factors and lowered investment.
Oil Prices
The historically low price of oil throughout 2016 and 2017 has been good for retail companies with lower delivery and transportation costs and higher spending by the US Consumer, who look to spend the money saved at the pump with lower gasoline prices. This factor has favorably influenced Kroger's sales and, with oil prices expected to remain relatively low, will remain a favorable condition in the years to come.
Investment Risks:
Competition
Kroger's number 1 risk is competition. With Amazon's
AMZN recent acquisition of Whole Foods there is worry that customers will be drawn away. This is evident by recent reports of traffic monitoring firms, yet I believe these fears are overdone and pricing will remain the major driver and not brand recognition. The company's strong eCommerce capabilities will battle Amazon's Whole Foods. Pricing Pressure
The company's efforts to compete by lowering prices hurt their bottom line, shrinking 2016 EPS over 30% and 2017 EPS over 11%. Although management has committed to cutting costs and boosting operational efficiency, it's hard to see significant upside until eCommerce maturation.
Conclusion:
I believe the company is way undervalued at current levels.
While you wait, the company pays an easily sustainable 0.125/quarter dividend, amounting to a 2.43% annual yield.
I'm starting the company with a $30 price target into Q2 2018 with a Strong Buy.
Ultimately down the line, I believe Kroger will conservatively be trading over 45/share.
For the full article: seekingalpha.com/article/4105825-kroger-biggest-loser-overreaction
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