The Kroger Co. (NYSE: KR) is the nation's largest grocery chain, boasting more than 2,400 stores, with the typical format being food/drug store combination stores.
Analysts see modest sales growth in 2008 of 4-7% but margins should widen, due to Kroger's ability to pass on product cost increases, and a more-modest advertising budget.
In general, analysts also sense that Kroger is in-tune with competitive pressures in the grocery chain segment - - improving customer service levels and the overall shopping experience. Further, look for KR's private label items to play a larger role in revenue, particularly as some consumers switch down to generic brands in 2008 to reduce their food costs. The Reuters FY 2008/FY 2009 EPS consensus estimates for KR are $1.69 to $1.89.
The risks? The increasingly competitive grocery segment is subject to continued pricing pressure from wholesalers and warehouse chains, but Kroger has met the challenge reasonably well, so far. Analysts are also watching overall consumer spending trends in the segment, but investors should note that the grocery category is generally the last cut back for consumers during tougher economic times, hence the sector's defensive category status.
The First Call mean rating for KR is: Buy [15 firms]. Mean 2008 target: $33.00 [high: $34, low: $30].
Stock Analysis: Kroger is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 2 years should be rewarded from KR's shares. Sell/Stop Loss if you were to purchase shares in this company: $17.
Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.
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