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Bet on Kroger as it Hits New High

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Shares of The Kroger Company (KR - Free Report) surged to attain a new 52-week high of $40.74 on Sep 17, 2013, before closing at $40.55. Shares of this Zacks Rank #3 (Hold) stock gained momentum from the company’s impressive second-quarter fiscal 2013 results and have amassed a year-to-date return of roughly 55.8%.

Based on the current price, this grocery retailer is 8.4% above the Zacks Consensus average analyst price target of $37.40. The company currently trades at a forward P/E of 14.54x, a discount of 6.9% to the peer group average of 15.61x. Additionally, the company’s long-term estimated EPS growth rate is 8.7%.

A dominant position among the nation’s largest grocery retailers enables Kroger to sustain growth in top and bottom lines, expand its store base, and boost its market share by introducing new items. The company posted quarterly earnings of 60 cents a share that surged 17.6% year over year buoyed by the Customer 1st strategy. Total sales climbed 4.6% during the quarter.

The company’s strong corporate and national brands helped gain customer loyalty. We believe that given the company’s strong identical store sales growth for about 39 successive quarters and strong bottom-line performance, Kroger is poised to achieve its long-term earnings per share growth rate target of 8% to 11%. Management reiterated fiscal 2013 earnings between $2.73 and $2.80.

Management continues to deploy capital to concentrate more on remodels, merchandising, and other viable projects. These include nearly 45 to 50 major capital projects comprising new store openings, expansions and relocations, and 130 to 160 remodels.

Kroger also remains optimistic about its acquisition of regional grocer, Harris Teeter Supermarkets for $2.44 billion in cash. It will provide Kroger an opportunity to expand its footprint in high-growth markets including Delaware, Florida, Maryland and Washington.

In our view, Kroger’s customer-centric business model provides a strong value proposition to consumers, and is well positioned to deliver higher earnings, primarily through strong identical supermarket sales growth (excluding fuel).

Alongside, shares of CBS Corporation (CBS - Free Report) , Best Buy Co., Inc. (BBY - Free Report) and Whirlpool Corp. (WHR - Free Report) reached a new 52-week high of $56.64, $39.14 and $144.00, respectively yesterday.

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