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Pick Kroger (KR) as You Revisit Your Portfolio Amid Volatility

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The market is trying to cope with the ongoing geopolitical tension, supply chain bottlenecks, and soaring inflation. Well, the conflict between Russia and Ukraine is worrying the market the most. So, you need to be smart when it comes to investment. The right choice of stock may fetch you higher returns even amid changing market dynamics. We present you with one such stock, The Kroger Co. (KR - Free Report) , that looks well-poised, given its sound fundamentals and growth efforts.

Shares of this Cincinnati, OH-based company have exhibited a decent run on the bourses in the past year. This Zacks Rank #1 (Strong Buy) stock has surged about 58.4% in the said period compared with the industry’s growth of 11.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.

With a long-term earnings growth rate of 9.9% and a VGM Score of B, Kroger has ample scope of attaining new highs. Additionally, an uptrend in the Zacks Consensus Estimate echoes the same sentiment. The consensus estimates for the current and next financial year have increased about 6.7% and 6.9% to $3.66 and $3.85, respectively, over the past 30 days.

Let’s Analyze

Kroger, which operates in the thin-margin grocery industry, has been undergoing a complete makeover not only with respect to products but also in terms of the way consumers prefer shopping grocery. The company has been making significant investments to enhance product freshness and quality, and expand digital capabilities. In a recent update, Kroger and NVIDIA announced a strategic collaboration to build a state-of-art AI lab and demonstration center to expand Kroger’s freshness initiatives, enhance shipping logistics and create a better shopping experience in stores.

No doubt, the company has been adding new products as well as eyeing technological expansion. Earlier, Kroger had acquired meal kit company, Home Chef, and partnered with British online grocery delivery firm, Ocado, which reinforces its position in the online ordering, automated fulfillment and home delivery space. The company’s partnership with Nuro, a leading autonomous vehicle company, is also worth noting.

Impressively, it has been introducing new items under its “Our Brands” portfolio — launched over 660 new items in fiscal 2021. It has announced a partnership with Kipster Farms to bring the world's first carbon-neutral, cage-free eggs to retail shelves in the United States under the Simple Truth brand.

 

Zacks Investment Research
Image Source: Zacks Investment Research

We note that Kroger’s digital business remains one of its key growth drivers, thanks to its Kroger Delivery Now, Boost membership program and the rollout of new customer fulfillment centers. The company’s ‘Kroger Delivery Now’ service provides customers with food and household staples in 30 minutes. During fourth-quarter fiscal 2021, the company opened a customer fulfillment center powered by Ocado in Forest Park, GA and a cross-dock spoke facility in the Indianapolis area. Apart from this, it has launched the Kroger Floral pilot in partnership with DoorDash in the Houston and Dallas divisions.

Clearly, customers have been opting for e-commerce solutions for their grocery and other household essentials. Considering the current scenario, the company has been focusing on a no-contact delivery option, low-contact pickup service and ship-to-home orders. It continued to expand contactless payment solutions like Kroger Pay or “Scan, Bag, Go.” Markedly, digital sales soared 105% during the fourth quarter, on a two-year stacked basis. Management remains committed to double digital sales by 2023.

Kroger envisions identical sales without fuel to be up 2-3% in fiscal 2022 compared with 0.2% growth registered in fiscal 2021. The company anticipates FIFO operating profit in the band $4.2-$4.3 billion compared with $4.3 billion reported in fiscal 2021. Management anticipates fiscal 2022 earnings between $3.75 and $3.85 per share, suggesting an increase from adjusted earnings of $3.68 reported in fiscal 2021.

Bottom Line

We believe that Kroger’s focus on fresh offerings, technology, and process improvements to lower costs, seamless digital ecosystem and margin-rich alternative profit business should continue contributing to growth.

3 More Stocks You May Bet On

Here we highlight three better-ranked stocks, namely, Target (TGT - Free Report) , Tractor Supply Company (TSCO - Free Report) and Sprouts Farmers (SFM - Free Report) .

Target, a general merchandise retailer, carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 21.3%, on average.

The Zacks Consensus Estimate for Target’s current financial year sales and EPS suggests growth of 3.5% and 6.7%, respectively, from the year-ago period. TGT has an expected EPS growth rate of 16.5% for three-five years.

Tractor Supply Company, a rural lifestyle retailer in the United States, carries a Zacks Rank #2 at present. TSCO has an expected EPS growth rate of 9.8% for three-five years.

The Zacks Consensus Estimate for Tractor Supply Company’s current financial-year sales and EPS suggests growth of 8.1% and 8.9%, respectively, from the corresponding year-ago period’s actuals. TSCO has a trailing four-quarter earnings surprise of 22%, on average.

Sprouts Farmers offering fresh, natural and organic food products currently carries a Zacks Rank of 2. SFM has an expected EPS growth rate of 7.3% for three-five years.

The Zacks Consensus Estimate for Sprouts Farmers’ current financial-year sales and EPS suggests growth of 4.5% and 5.2%, respectively, from the corresponding year-ago period’s readings. SFM has a trailing four-quarter earnings surprise of 17.9%, on average.

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