Kroger stock has taken off because the pandemic prompted people to eat more meals at home.
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Kroger stock is climbing following an upgrade from Telsey Advisory Group that says the market isn’t giving the supermarket operator enough credit for its digital drive as it prepares to disclose its earnings.
Analyst Joseph Feldman raised his rating on Kroger (ticker: KR) to Outperform from Market Perform, lifting his price target to $54 from $47. Feldman said he has “higher visibility and confidence into Kroger’s multi-year omnichannel growth runway.”
Kroger was up 2.6% in early trading to $48. The shares have risen more than 43% in the past year, gaining as people ate more meals at home during the pandemic.
Feldman is encouraged by a number of factors, including Kroger’s increased focused on fresh foods and private brands and its expansion of delivery and online sales. Not only is Kroger focusing on new sales channels for groceries, but also it is also expanding online through partnerships with companies as varied as Instacart and Bed Bath & Beyond (BBBY). In addition, Kroger is moving into new areas, including the Northeast, while leveraging technology to improve operations, including robotics-enabled Ocado fulfillment centers.
Kroger will report its fourth-quarter results on Thursday. The numbers are likely to come in slightly higher than Wall Street expects, Feldman says. Analysts anticipate Kroger will report earnings per share of 74 cents on revenue of $32.7 billion. He also thinks that the Street’s forecasts for 2022 as a whole are too conservative, given the factors outlined above.
By next year, Feldman noted, Kroger plans to have $20 billion in digital sales, with profitably improving as it scales up that operation. The company’s paid loyalty program Kroger Boost, which provides free delivery, will be rolling out in more markets, he said.
He also thinks Kroger will expand its marketplace with more partnerships in the mold of its deal with Bed Bath & Beyond, and that those agreements will add to sales and boost profitability.
That said, it remains a very controversial stock: Only a quarter of the analysts tracked by FactSet rate Kroger a Buy or the equivalent, and 21% are bearish.
Plenty of big players are pushing into the grocery business, and while digital sales are booming, traditional supermarkets aren’t often consumers’ first choice. Just over a month ago Citigroup downgraded Kroger, arguing among other things that inflation will also remain a headwind for the stock.
Write to Teresa Rivas at [email protected]
