Kroger (KR): One undervalued stock

By Timothy Lutts, Chief Analyst, Cabot Stock of the Week
Fro Cabot Wealth Advisory 8/15/16 Sign up for Cabot Wealth Advisory—it’s free!

Kroger (KR) is one of those old retail names that still hanging on, in a world where internet commerce is advancing by leaps and bounds. Many investors have give up on the company, as evidence by its 24% decline over the past year. But Roy Ward, Cabot’s Senior Value Analyst, says the stock is an attractive, low-risk buy here. Here’s a piece of what Roy wrote to his readers in his latest issue.

“Kroger operates retail food and drug stores, multi-department stores, jewelry stores, and convenience stores throughout the U.S. Kroger is the largest grocer in the U.S. and operates 2,778 supermarkets and multi-department stores, 1,400 of these have fuel centers. The company operates under several names including Kroger, City Market, Dillons, Food 4 Less, Fred Meyer, Fry’s, Harris Teeter, Jay C, King Soopers, QFC, Ralphs, and Smith’s. Kroger also operates 785 convenience stores directly or through franchisees, 323 fine jewelry stores, and an online retail website.

“Kroger recently acquired Axium Pharmacy Holdings, a specialty pharmacy; Vitacost.com, an online retailer of vitamins and health-oriented products; and Roundy’s, a grocery store chain. Several years ago, management devised a new strategy to cut costs, increase efficiency, and grow sales and earnings consistently. It also created “Customer 1st,” a customer-focused shopping program to gain shopper loyalty. The results have been impressive, and management will continue its strategy in 2016 and 2017. Management will also focus on over 200 remodels, new store openings, and its program to enrich shoppers’ visits.

“I expect sales to rise 7% and EPS to climb 16% to 2.30 during the next 12-month period. The company’s purchase of Roundy’s is producing better than expected results. Management forecast a slight slowing in EPS growth because of fluctuating gasoline profit margins, but overall growth is on target. At 18.0 times latest 12-month EPS, the company stands out in the consumer staples sector. Kroger’s board of directors increased the quarterly dividend to $0.12 from $0.105, resulting in a yield of 1.3%.”

Roy also provided his readers with a precise Maximum Buy Price and a Minimum Sell Price for Kroger, and you can get those too if you become one of his regular readers. Click here for more information.

Kroger (KR): Taking market share

By J. Royden Ward, Editor of Cabot Benjamin Graham Value Letter
From Cabot Wealth Advisory 1/2/13 Sign up for free Cabot Wealth Advisory e-newsletter

Which stocks will perform well in 2013? As the Editor of the Cabot Benjamin Graham Value Letter, I follow value stocks closely. For the past several decades, value stocks have outperformed growth stocks consistently, but during the past 15 months, growth stocks have outperformed value stocks.

During the past three months, though, value stocks have begun to outshine growth stocks. I believe 2013 will be an exceptional year for value stocks. Top-notch companies in leading industries are clearly undervalued and look very attractive.

I scanned my database to find five stocks with the right credentials to perform very well in 2013.

One of my recommendations is Kroger (KR). Kroger, founded in 1883 in Cincinnati, is one of the largest U.S. grocers, with 2,422 supermarkets in 31 states. The company also operates 790 convenience stores, 344 jewelry stores and 1,141 supermarket fuel centers. Kroger’s typical format includes food and drug stores containing bakeries, delis, seafood, meat and floral shops, pet centers and high-quality fresh items such as organic produce.

Management recently introduced an ambitious program to boost the number of new stores. Kroger will also expand its business by launching discount stores and restaurants. Management is committed to improve sales and earnings growth considerably during the next couple of years and beyond.

Recent quarterly financial results have been impressive. Kroger’s “Customer 1st Strategy” continues to raise customer loyalty, boost same supermarket sales and increase market share. Management lifted its earnings guidance for the current quarter and forecast accelerating sales and earnings for 2013. Kroger is taking market share despite formidable competitors such as Walmart.

At 11.3 times current EPS and with a dividend yield of 2.3%, KR shares are undervalued. The balance sheet is solid, and Kroger shares are less volatile than the shares of most companies. Buy now and sell at my Minimum Sell Price of 35.35.

I will continue to follow Kroger and other blue-chip, high-quality investments in my Cabot Benjamin Graham Value Letter. In every issue, you’ll find my legendary Maximum Buy and Minimum Sell Prices for over 250 stocks plus my up-to-date predictions for the Dow Jones Industrial Average. Click here for more information.

Kroger Co. (KR): Low volatility and generous yield

By J.Royden Ward, Editor of Cabot Benjamin Graham Value Letter
From Cabot Wealth Advisory 11/22/12 Sign up for free Cabot Wealth Advisory e-newsletter

Kroger Co. (KR), founded in 1883 in Cincinnati, is one of the largest U.S. grocers, with 2,476 supermarkets in 31 states. The company also operates 779 convenience stores, 393 jewelry stores, and 737 supermarket fuel centers. It also operates 41 food processing plants providing 15% of total grocery sales.

Kroger’s typical format includes food and drug stores containing bakeries, delis, seafood, meat and floral shops, pet centers and high-quality fresh items such as organic produce. Supermarket fuel centers are also located at many locations. The company’s “Customer First” strategy emphasizes consumer service.

Management recently introduced a new program to boost the number of new stores significantly. Kroger’s will also expand its business to include discount stores and restaurants. Management is committed to improving sales and earnings growth considerably during the next couple of years.

During the past 12 months ended 8/31/12, sales increased 6%, and EPS rose 14%. In the most recent quarter, same-store sales climbed 3.6%, which is noticeably better than previous quarters. Kroger is taking market share despite formidable competitors such as Walmart.

At 9.8 times my one-year forward EPS estimate of 2.50, KR shares are undervalued. Stronger same-store sales and multiple new store openings will lead to sales and earnings gains of 7% and 12% during the next 12 months ending 8/31/13. Kroger shares are less volatile than the shares of most companies. The dividend yield of 2.4% is generous. The company has been paying a dividend since 2006 and has increased it every year. I recommend buying KR below 26.02.

I will continue to follow Kroger, as well as many other blue-chip, high-quality companies in my Cabot Benjamin Graham Value Letter.

Editor’s Note:
You can find additional stocks selling at bargain prices in Cabot Benjamin Graham Value Letter. Find out why our subscribers are showering us with compliments! In every issue, you’ll find Maximum Buy and Minimum Sell Prices for over 250 well-known stocks. Just buy at the Max Buy Price and sell at the Min Sell Price–it’s that easy. Click here to get started today!