The Kroger Company
by Zacks Equity ResearchJuly 13, 2012 | Comments : 0 Recommended this article: (0)
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This Zacks #2 Rank (Buy) grocery store giant recently delivered its third consecutive positive earnings surprise and raised its profit guidance for fiscal 2012, prompting analysts to revise their estimates higher. On top of the favorable earnings trend, Kroger offers investors a growing dividend currently yielding a solid 2.0% and reasonable valuation.
Amid uncertainty in the financial markets and interest rates close to all-time lows, this well-known household name looks like a solid pick for investors seeking both growth and income.
Strong Start to 2012 & Guiding Higher
Kroger reported fiscal first quarter (ended May 19) earnings per share of 78 cents on June 14, beating the Zacks Consensus Estimate by 8% and the year-ago earnings by 11%.
The results were driven by a 4.2% gain in same-store sales a key indicator of a retailer's health representing the 34th straight quarter with an increase. Its continued emphasis on a customer-centric business model also helped. Share repurchase activities provided further cushion to the bottom line, which grew ahead of Krogers long-term goal of 6% to 8% growth.
In addition to delivering a high single-digit earnings surprise, Kroger raised its full year earnings guidance. The company expects earnings per share for fiscal 2012 between $2.33 and $2.40, up from the previous guidance of $2.28 to $2.38.
Shareholder Friendly Capital Deployment
Kroger pays a dividend that yields a healthy 2.0%. The nations biggest supermarket chain has raised its dividend every year since it began paying in 2006.
In fiscal 2011, Kroger spent a whopping $1.5 billion in buying back 66.5 million shares of its stock. The company has been continuing the share buyback activity in 2012 as well and already spent $345.3 million for repurchasing 14.6 million shares during the fiscal first quarter. Importantly, Kroger recently announced a new $1 billion share repurchase plan to replace the prior authorization that expired on June 12, 2012.
Estimates Move Higher
Based on Krogers ability to increase sales and market share, the full year Zacks Consensus Estimate for fiscal 2012 is up 6 cents (or 3%) to $2.38 over the last 30 days. Next fiscal year's average forecast is up 3 cents (or 1%) to $2.52. Given the $1.96 per share earned in fiscal 2011, the projected growth rate stands at 21% for fiscal 2012. If the company hits the estimate in fiscal 2013, the annual growth rate will be 6%.
Shares of Kroger are going for about 9.6 times forward estimates, on par with the peer group average. Though the price-to-book ratio of 3.1 is significantly above the average of 1.8 offered by similar companies, Krogers trailing 12-month return on equity (ROE) of 25.8% is much better than its peer group average of 18.1%.
Chart Shows Estimate Growth
Below one can see the long-term earnings trend for Kroger. Analysts are increasingly bullish on the company, which is reflecting in their earnings estimates. In particular, with the price and consensus chart demonstrating incrementally increasing consensus estimates for fiscal 2012 and 2013, shares could keep climbing higher.
Cincinnati, Ohio-based The Kroger Company is one of the largest grocery retailers in the U.S., operating 2,425 supermarkets and multi-department stores in 31 states under approximately 24 local banners. In addition, Kroger runs 789 convenience stores, 337 fine jewelry stores, 1,109 supermarket fuel centers, and 38 food-processing plants.
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