It is one of the country’s biggest grocers, and saw earnings balloon amid the Covid-19 pandemic. But is Kroger stock a buy right now? Here is what fundamental and technical analysis says.
Kroger (KR) was founded in 1883, and is headquartered in Cincinnati. It operates almost 3,000 supermarkets, making it the country’s largest independent grocer. As well as its namesake Kroger, it also operates under a number of other banners including City Market, Dillons, Food 4 Less, Ralph’s and Fry’s. Many of its outlets are also fuel centers.
The retail stock has been getting into online groceries, curbside pickup and other digital and delivery options to keep pace with the likes of Walmart (WMT), Target (TGT) and Amazon.com (AMZN), which owns Whole Foods Market. But those are costly ventures in the notoriously low-margin grocery business. Nevertheless, those options have been booming since the coronavirus pandemic hit the U.S.
The grocery giant posted earnings and revenue in excess of analyst expectations in Q1. Adjusted EPS of $1.19 per share was higher than the 99 cents expected by Wall Street, according to Zacks Investment Research.
Revenue of $41.3 billion was also better than the $39.2 billion consensus estimate.
A digital sales increase of 16% was a big slowdown from its growth in previous quarters’ digital sales. Still, it’s an area of strong growth for Kroger. Same-store sales, excluding fuel, dipped 4.1%.
“The customers continue to like to shop online … When they shop (online and in stores), our retention rate is incredibly high,” CEO William McMullen said during the firm’s earnings call.
Kroger increased his full-year EPS guidance to between $2.95 and $3.10 per share. This was up from previous guidance for between $2.75 and $2.95 per share in 2021. The firm also unveiled a $1 billion stock buyback program.
Kroger Stock Analysis
Kroger stock is back above its old cup-with-handle buy point of 39.36, MarketSmith analysis shows. It attempted to break out June 8, but went on to trigger the 7%-8% sell rule. This invalidated the base. The June 22 high can work as an alternate entry at 40.18, and the stock is near that.
KR stock has managed to pull away from its 50-day line, which is a positive. But it has fallen below this key benchmark on multiple occasions in 2021, not the sort of decisive action one wants to see from a market leader.
Its current travails come after a previous failed breakout from a cup base in late January. It rose as high as 42.99 before rapidly retreating back below its buy point of 37.32. This triggered a round-trip sell rule.
The relative strength line for Kroger stock looks weak overall, and is currently moving sideways. It is now off its highs for the year. The RS line gauges a stock’s performance compared to the S&P 500 index.
Kroger stock has a lackluster IBD Composite Rating of 60. Its key weakness is its share-price performance. It currently holds a poor Relative Strength Rating of 56 out of 99. This gauges a stock’s performance compared to all stocks tracked by IBD over the past 12 months.
Nevertheless, since the start of the year Kroger stock is up about 25%. This beats the S&P 500’s gain of almost 18%.
Earnings A Key Strength
The Stock Checkup Tool shows earnings have been a strong point for the company of late. Over the past three quarters EPS has grown by an average 30.2%. This is above the 25% growth sought by the CAN SLIM cognoscenti.
Longer-term growth is not as strong, with earnings rising an average 21% over the past three years. KR stock holds a mediocre EPS Rating of 70.
Analysts see full-year EPS falling 12% in 2021, before flattening out the following year. This is far from ideal.
Another key consideration for CAN SLIM investors is whether big money is backing a stock. The picture here is unclear, with its Accumulation/Distribution Rating currently sitting at B-. This represents moderate buying among institutions over the past 13 weeks. In total, 41% of its stock is held by funds.
In an attempt to drive growth, the supermarket giant launched the Kroger Restock program. It has seen the firm invest in areas such as space optimization and store remodeling, as well as technology advancements.
A key part of the initiative was beefing up its offerings for ordering online, its in-store pick-up initiative, home delivery offerings and self-checkout. These investments are now bearing fruit, with digital sales booming in the midst of the coronavirus pandemic. Growth is now slowing, however.
Competition Heats Up For KR Stock
Kroger faces formidable opposition in the grocery space from Dow Jones colossus Walmart and industry disrupter Amazon. In addition, Target is also competing for grocery market hare, as it drives foot traffic to its general retail stores.
In a recent count, Walmart was offering grocery pickup at 3,600 stores and same-day delivery at approximately 2,900 stores. Target, meanwhile, is offering its own curbside pickup at more than 1,000 stores in 47 states. Amazon also offers curbside pickup through its 487 Whole Foods stores in the U.S. In addition, it is launching free, one-hour grocery pickup for Prime members.
Walmart, Whole Foods and Target are all also offering grocery delivery. The likes of Instacart and DoorDash also facilitate home grocery delivery.
Analyst Rates Kroger Stock
Jefferies analyst Matt Fishbein is rating Kroger stock as a hold. He increased his price target to 38 from 37 following their most recent earnings report.
“Consumption trends and the stability of elevated market share remain key questions, but strong Q1 results and guidance raise are positives for KR’s post-pandemic setup,” he said in a research note.
The analyst said the firm’s beat-and-raise report was mainly driven by higher sales and operating margin, “owing to stickier at-home food consumption and digital profitability improvements, partly offset by sales deleverage and price investments.”
But Fishbein thinks the stock may be priced for post-pandemic perfection. Due to this, he kept his hold rating on the stock.
Is Kroger Stock A Buy?
Kroger stock is not a buy at the moment. While it moved above an alternate buy point, it is slightly below it now. Investors should wait for a solid move back above 40.18.
Its stock market performance over the last 12 months has also been mediocre overall, though it is managing to beat the S&P 500 so far in 2021.
Investors looking for true market leaders are urged to check out IBD Stock Lists, including the IBD 50 list of top performing stocks.
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