This is our short term rating system that serves as a timeliness indicator for stocks over the next 1 to 3 months. How good is it? See rankings and related performance below.
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With sluggish data and an uncertain global outlook, many investors are delving deeper into U.S. focused stocks. The focus has largely been on more defensive areas, such as consumer staples companies, as these are seen by many as lower volatility choices that can still participate in any market swings higher.
In particular, investors have been seeing a solid outing from companies like Kroger (KR - Analyst Report), which have not only performed well to start the year, but are well positioned to continue their run in the second half of 2013 as well.
In fact, Kroger has already gained over 30% in the YTD time frame, a pretty incredible figure that has not only crushed the S&P 500, but has also obliterated expectations for the grocery store segment as a whole.
Don’t be alarmed by the firm’s big rise so far this year though, as there are a few reasons why the trend could continue in the near term. First, double digit earnings growth is projected for the next quarter, while the next five years look to see a 9.2% growth rate, a better level than what was seen in the trailing five year period.
Earnings estimates have broadly been moving higher for the company too, but especially so for the current and next year figures. In these time frames, analysts have universally raised their estimates, suggesting broad agreement about the KR story.
Earnings consensus projections are now at elevated levels for the current and next year figures, as over the past two months both consensuses have risen by over 6%. While this does mean that expectations might be tough to match in the coming time frames, it is important to note that the firm has beaten out earnings estimates in every one of the last four quarters, so it has a pretty good track record.
Other Factors to Consider
The earnings picture isn’t the only part of KR’s story that is strong though, as the company has a bevy of other fundamental factors supporting its story as well. Kroger is favorably valued when compared to other names in the food & staples retailing industry, as it has a lower P/E, and a minuscule P/S ratio, when compared to the industry average.
Beyond that, investors should also note that the product has a very low short interest, coming in below 2%. This suggests that most investors are in agreement on KR’s story in the near term, and that there isn’t a big group betting against the grocer.
And, best of all, the stock is a relatively low beta choice as its reading on this front comes in at just 0.40. So, even if markets start to crumble, KR should remain relatively unscathed making it an interesting defensive pick that is very capable of outperformance.
Thanks to the robust earnings picture described above, Kroger has a Zacks Rank of 1 or ‘Strong Buy’. This means that we look for this company to outperform other, lower Ranked, stocks over the next few months.
While this has already been the case for much of 2013, we expect this to continue, as there is a great deal of analyst agreement over the company’s story in the short term. And if somehow that isn’t a good enough reason to buy this grocer, consider that even with its recent run, it is still undervalued compared to the competition, suggesting that it might not be too late to jump in on this stock.
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