Retail giant The Kroger Co. (KR) operates combination food and drug stores, multi-department stores, marketplace stores, and price impact warehouses. It runs around 2,726 supermarkets under various banner names in 35 states and the District of Columbia.

KR recently expanded its services at multiple locations across America. On August 2, 2022, KR announced the official opening of a new spoke location in Louisville, Kentucky. Also, earlier this year, KR announced the official opening of its Customer Fulfillment Center in Dallas, Texas, and in the Village of Pleasant Prairie, WI, a city centrally located between Milwaukee and Chicago.

Furthermore, on June 23, 2022, KR approved a 23.8% dividend increase from $0.84 to $1.04/year. KR’s current dividend yields 2.12%, while its four-year average yield is 1.96%. The stock’s dividend payout has increased at a 15.3% CAGR over the past three years.

KR has gained 6.8% over the past year to close the last trading session at $48.55. Moreover, it has gained 7.3% year-to-date and marginally over the past month.

Here is what could shape KR’s performance in the near term:

Solid Financials

KR’s sales for the fiscal first quarter ended May 21, 2022, came in at $44.60 billion, up 8% year-over-year. Its operating profit came in at $1.50 billion, up 87% year-over-year.

Moreover, its net earnings came in at $664 million, up 374.3% year-over-year, while its adjusted EPS came in at $1.45, up 21.8% year-over-year.

Attractive Valuations

KR’s forward EV/S of 0.37x is 80.3% lower than the industry average of 1.87x. Its forward EV/EBITDA of 7.50x is 40.2% lower than the industry average of 12.55x.

Furthermore, its forward EV/EBIT of 12.76x is 23.5% lower than the industry average of 16.68x. Also, its forward P/S of 0.24x is 81.5% lower than the industry average of 1.29x.

Favorable Analysts’ Expectations

KR’s revenue has increased at a 5.2% CAGR over the past three years. Its EPS has grown at an 8.3% CAGR over the past three years. Also, KR surpassed EPS estimates in each of its trailing four quarters.

Analysts expect KR’s revenue to increase 7.1% year-over-year in the current year and marginally in the next year. In addition, its EPS is expected to increase 6.2% year-over-year in the current year and 3.6% in the next year. Moreover, its EPS is estimated to grow 6.9% per annum for the next five years.

POWR Ratings Reflect Promising Outlook

KR has an overall rating of A, which equates to Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

The stock has a B grade for Growth and Value, consistent with its solid financials in the latest reported quarter and lower-than-industry valuation multiples, respectively.

In the 38-stock Grocery/Big Box Retailers industry, KR is ranked #4. The industry is rated A.

Click here for the additional POWR Ratings for KR (Momentum, Sentiment, Stability, and Quality).

View all the top stocks in the Grocery/Big Box Retailers industry here.

Bottom Line

Despite rampant market volatilities, KR has managed to deliver positive returns. Moreover, Wall Street analysts expect it to hit $54.22 in the near term, indicating a potential upside of 11.7%.

In addition, the company’s stable dividend payouts could help generate a stable income stream in these uncertain times. Thus, I think KR could be a solid addition to your portfolio now.

How Does The Kroger Co. (KR) Stack Up Against its Peers?

While KR has an overall POWR Rating of A, one might consider looking at its industry peers, Ingles Markets, Incorporated (IMKTA), Walmart Inc. (WMT), and Natural Grocers by Vitamin Cottage, Inc. (NGVC), which have an overall A (Strong Buy) rating, and BJ’s Wholesale Club Holdings, Inc. (BJ), which has an overall B (Buy) rating.

KR shares rose $0.96 (+1.98%) in premarket trading Thursday. Year-to-date, KR has gained 8.78%, versus a -9.50% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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