The Kroger Company ( KR - Analyst Report ) has watched all 12 earnings estimates for 2012 move higher in the last 7 days, after this grocery retailer raised its full-year earnings guidance during its third-quarter report. With a decent dividend yield of 2.5%, an impressive guidance for 2012 and a long-term expected earnings growth rate of 9.1%, this Zacks #2 Rank (Buy) offers an attractive investment opportunity for investors seeking both growth and income.

Strong Third Quarter

On November 29, Kroger reported third-quarter earnings of 46 cents, beating the Zacks Consensus Estimate by 7.0% and last year’s earnings by 39.4%. This marked the fourth straight quarter with a positive earnings surprise. Favorable cost management and share repurchase activities aided the bottom-line improvement.

Total revenue grew 5.9% year over year to $21.8 billion in the quarter, which was ahead of the Zacks Consensus Estimate of $21.7 billion. This performance benefited from positive identical supermarket sales growth and expansion of stores. The company’s identical supermarket sales grew 3.2% to $16.1 billion, marking the 36th successive quarter with an increase.

Impressive Guidance

Kroger’s healthy results prompted management to raise the outlook. The company now expects 2012 earnings between $2.44 and $2.46 per share, up from the earlier forecast of $2.35 to $2.42.

Kroger’s customer-centric business model provides a strong value proposition to consumers. It is well positioned to continue its growth momentum primarily through identical supermarket sales growth. The company expects identical supermarket sales growth between 3.0% and 3.5% in the fourth quarter of 2012.

Dividend Payout

Kroger has been increasing its dividend every year since 2006. The company increased its quarterly dividend in September by 30%, bringing the annualized payout to 60 cents per share from the earlier level of 46 cents. The quarterly dividend increased from 11.5 cents to 15 cents, reflecting a decent annual dividend yield of 2.5%.

Surge in Earnings Estimates

Over the past 7 days, all 12 estimates for 2012 were revised upward, lifting the Zacks Consensus Estimate by 2.5% to $2.47 per share. This indicates year-over-year growth of 26.2%. The Zacks Consensus Estimate for 2013 increased by 1.5% to $2.63 per share as 13 of 19 estimates moved upward. This reflects a year-over-year increase of 6.5%.

Reasonable Valuation

Kroger currently trades at a price-to-sales (P/S) multiple of 0.15, reflecting a 34.8% discount to the peer group average of 0.23. In addition, the stock looks attractive as it has a trailing 12-month return on equity (ROE) of 31.9%, much above its peer group average of 17.9%.

Chart Showing a Consistent Advance

Shares of Kroger have been consistently rising since mid-September 2012 and jumped steeply following the third quarter results. Moreover, the stock is currently trading above its 200-day and 50-day moving averages, which stand at $23.07 and $24.40, respectively. Volume is strong, averaging roughly 4,565K daily. Kroger has outperformed the S&P 500 over the last 3 months.

Based in Cincinnati, Ohio, Kroger is a retailer, manufacturer and processor of variety of food for sale in its supermarkets. It operates retail food and drug stores, multi-department stores, jewelry stores, and convenience stores throughout the United States. The company currently has a market cap of $13.8 billion.

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