Kroger Co (NYSE:KR) – Evaluating Risks and Growth Catalysts

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Kroger Co (NYSE:KR) posted mixed second quarter results. Revenue in the period increased by 3.9% to reach $27.6 billion. But comparable sales of Kroger are declining every year. Margins are also taking a hit as the company continues to offer discounts and promotions. Net income in the quarter declined by 22% year over year.

The stock has lost almost half of its value since the start of this year. Kroger is under pressure after Amazon’s acquisition of Whole Foods.

Kroger has the second largest share in the grocery market in the US after Walmart. Analysts think that Amazon-Whole Foods could gain about 5% market share in the coming years. Morgan Stanley estimates that by the end of 2020, Whole Foods could expand its customer base to a 25.2 million, almost double the amount of customers is currently has.

https://www.cnbc.com/2017/06/16/amazon-whole-foods-control-only-sliver-of-the-grocery-market-for-now.html

Kroger Co (NYSE:KR) recently announced to enter into the restaurant industry. Kroger’s Kitchen 1883 will be a full-service restaurant. These restaurant outlets will be opened in Kroger stores. Analysts think that the restaurant sector is highly competitive and Kroger will have to work hard to gain traction in the initial stages.

But several analysts think that the market is overreacting to Amazon-Whole Foods deal, and that Kroger is in a strong position to take the pressure. Kroger has a huge penetration in the US. The company has 2800 stores in almost 35 states of the country, while Whole Foods has a total of 470 stores in three countries.

Kroger is targeting the food market with several new initiatives. The company recently announced to start selling “prepared meal” kits at several of its stores. Kroger has also started to sell specific recipe ingredients.

But there are no explosive growth catalysts for Kroger Co (NYSE:KR) on the horizon. The stock, however, remains a good investment for the long term gains. Recently, Pivotal Research upgraded the stock to “Buy” from “Hold” and set a price target of $25. Pivotal’s analyst Ajay Jain thinks the latest pullback is a buying opportunity. Jain also rejected the market fears amid Kroger management’s decision to not give full-year guidance. Jain thinks that no guidance does not mean that the company isn’t expecting any growth.

On the other hand, investment firm Jefferies decreased its price target for Kroger Co (NYSE:KR) to $19 from $24. The firm maintained a “Hold” rating for the stock.

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