Wall Street Debates Kroger After Disappointing 2018 Outlook


Jayson Derrick, Benzinga

March 12, 2018


Grocery giant Kroger Co reported fourth-quarter results that were mostly in-line with expectations, but its outlook for the full fiscal year sent the stock lower last week.


The Analysts


         BMO Capital Markets' Kelly Bania maintains a Market Perform rating on Kroger's stock with a price target lowered from $31 to $27.

         Morgan Stanley's Vincent Sinisi maintains an Equal-weight rating on Kroger's stock with a price target lowered from $29 to $26.50.

         UBS' Michael Lasser maintains a Neutral rating on Kroger's stock with a price target lowered from $30 to $26.


BMO: Concerns Beyond Headline Numbers


Kroger's earnings report was in-line with expectations on the headline numbers, but were weak when considering other reported metrics, Bania said in a research report. For example, comps of 1.5 percent was a "weak" figure when considering the 31-basis-point decline in gross margin percentage, the analyst said.


Product cost inflation moved higher from 0.5 percent in the fiscal third quarter to 1 percent in the fourth quarter at a time when retail inflation remained below product cost inflation, according to BMO Capital Markets.


Kroger's savings from recent tax legislation will allow the company to pull the timing of its three-year "Kroger Restock" plan forward, the analyst said. The company's incremental investments in the business are small and mostly focused on improved employee education and retirement, which should not make investors incrementally more constructive on the grocer's outlook, Bania said.


Morgan Stanley: This Is the Core Issue ...


UBS: Kroger Is Fairly Valued ...


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