The COVID-19 tailwinds provided Kroger (KR) with a strong second quarter, but investors are a hard breed to please at times. Last Friday, with an estimate beating Q2 report in tow, the supermarket chain received a frosty reaction from the market; shares barely moved, only nudging slightly into the red following the quarterly statement’s release. Let’s take a look at the numbers.
Kroger reported revenue of $30.49 billion, displaying an 8.2% year-over-year uptick and beating the estimates by $460 million. Kroger posted a beat on the bottom line too, with Non-GAAP EPS of $0.73 outpacing the forecasts by $0.19.
Add into the mix growth of 14.6% in ID sales (same store sales) and a massive 127% increase to digital revenue, and the shopping basket appears overflowing with goodness.
However, Deutsche Bank analyst Paul Trussel has an explanation for the Street’s overall lack of enthusiasm.
“We believe the muted reaction in the stock today is driven by the lack of substantial flow-through going forward despite sustained strong ID sales as well as elevated expectations into the print,” Trussel said.
According to the analyst, investor sentiment is “mixed” with the bulls highlighting the strong digital performance in addition to a “potential structural shift to food at home bolstering KR’s ability to lap tough compares next year.” The bears, on the other hand, are worried about “weak FIFO margins (up only 5 bps compared 44 bps in 1Q) and limited stock upside given very tough compares and an already elevated valuation.”
And where does Trussel stand? Somewhere in the middle, as it happens.
“We think KR is executing well demonstrated by robust online growth and market share gains,” the 4-star analyst said, “However, we stay on the sideline due to valuation as our out year estimates are mostly unchanged and concerns remain around increasing promotions in the marketplace.”
Trussel’s Hold rating is accompanied by a $35 price target, implying shares will remain range-bound for the foreseeable future. (To watch Trussel’s track record, click here)
Overall, the rest of the Street’s view is mixed. KR’s Moderate Buy consensus rating is based on 5 Buys and 12 Holds. The 12-month projection is for 12% upside, given the average price target clocks in at $36.69. (See Kroger stock-price forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
