Yes, Kroger (NYSE:KR) Is Still A Bargain

Another Blow-Out Report From Kroger

Kroger (NYSE:KR) has been at the forefront of the pandemic rebound and is no danger of losing its position. The stock is up more than 30% from the pandemic bottom, revenue is still accelerating, and the stock is still a bargain. Trading at only 12X this year’s earnings Kroger offers a deep-value relative to the broader market and pays a much more attractive dividend. The 2nd quarter results may have sparked a small sell-off in the stock but you can rest assured there are buyers waiting to scoop up this bargain.

Kroger Blows Past Consensus, Raises Guidance

 The analysts, believe it or not, had been raising targets for Kroger all summer and yet the company still beat consensus. The top-line revenue came in at $30.49 billion or 8.2% to top consensus by 150 basis points. That’s not a lot I know but goes to show strong performance is even stronger than Wall Street’s best minds had predicted.

If not for gas the results would have been much stronger. Comps ex-gas rose 14.6% across the company’s footprint, 400 basis points better than expected. eCommerce, a factor the company struggled with at first, grew 172% over the past year to underpin results.

“Customers are at the center of everything we do and, as a result, we are growing market share. Kroger's strong digital business is a key contributor to this growth, as the investments made to expand our digital ecosystem are resonating with customers,” says CEO Rodney McMullen.

The bottom line figures are equally impressive. Adjusted EPS of $0.73 beat by $0.19 while GAAP EPS came in at $1.03 to top consensus by $0.51. Looking forward, the company expects this strength to carry through into the end of the year. The guidance for comps ex-gas is greater than 13% with a 45% increase in YOY earnings and $2.6 billion in free-cash-flow.

Kroger Is A Fortress Investment To Help You Sleep Well At Night

Kroger’s 2Q results helped the company improve its capital position and deliver money to shareholders. The company’s debt to earnings ratio fell to a super-low 1.7X, down from 2.46 in the previous year, and below the target range of 2.3X to 2.5X earnings. Regarding capital returns, the company raised the dividend for the 3rd quarter payout and continues to buy back stock. Kroger bought back $211 million worth of shares in the 2Q and the board approved another $1 billion in buybacks that starts immediately.

The dividend is one of the safest on Wall Street. The 2.0% yield is sufficiently above the broad market average to be interesting and there is every indication the distribution will be increased annually long into the future. The 25% payout ratio, cash position, low amount of debt, and 14% CAGR suggest future increases will be substantial.

The Technical Outlook: Bargain Prices At Kroger

Shares of Kroger fell about -2.0% in early trading following the report but the move is already finding support. Buyers began scooping up the bargain when price action crossed the $34 level and so far the buying looks strong. The $34 level is probably as deep as this pullback will go, it was a strong resistance point over the summer so equally strong in terms of support.It may take several days to several weeks for a bottom to establish itself but the longer-term outlook is bullish. I would not be surprised if Kroger retests its all-time high before the end of the year.