KR – Start Shopping Now for Kroger Stock

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Welcome to the Stock of the Day!

This morning, all eyes are on Kroger (KR), which just reported its 40th consecutive quarter of identical supermarket sales growth. With such a stellar sales track record, why are shares down? Is this a buying opportunity?

Find out now.

Company Profile

With 2,631 supermarkets across 34 stores, Kroger is known for being the nation’s largest traditional supermarket operator. But what many don’t know is that the Kroger umbrella also covers nearly 1,200 gas stations, 800 convenience stores, over 300 jewelry stores and 37 food processing facilities.

In total, Kroger brought in $96.8 billion in 2012 and analysts expect 2013 sales to total up to $98.95 billion.

Earnings Buzz

Grocery chain operator Kroger posted solid operating results for the third quarter. The company posted a 3.5% year-on-year jump in identical supermarket sales (excluding fuel sales), marking the 40th consecutive quarter of growth.

Total revenue climbed 3% to $22.51 billion, missing the $22.72 billion consensus estimate by a hair. Over the same period, net income declined 6% to $299 million, or 57 cents per share. These results include a tax benefit and expenses related to the company’s pending merger with Harris Teeter.

Excluding special items, adjusted earnings were 53 cents per share, in line with analyst estimates. Looking ahead to fiscal 2013, Kroger expects between 8% and 11% earnings growth and 3% to 3.5% identical supermarket sales growth.

Competition Breakdown

Currently, out of the 48 companies in this industry, Kroger ranks 11th on market cap (the largest player in the business is Tesco PLC). Kroger stands out in terms of return on equity (second) and its 1.6% annual dividend yield (seventh). It also ranks above the industry average on earnings growth (15th), sales growth (16th) and long-term growth rate (17th).

When you compare Kroger with its big rivals—Costco (COST) and Target (TGT)—you see that KR is the best buy right now. Both COST and TGT are struggling to attract institutional buying pressure, with C- and F-rated Quantitative Grades respectively.This indicates that these two stocks have become riskier to invest in of late.

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Meanwhile, the other two lag behind Kroger in terms of sales growth, operating margin growth, earnings growth, earnings surprises and cash flow. COST is a C-rated hold while TGT is a D-rated sell.

Current Ratings

Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. Kroger has improved significantly over the past 12 months; this time last year, KR was a C-rated hold. Since then, buying pressure has made a complete reversal as institutional interest for KR has gained steam. Currently, KR receives an A for its Quantitative Grade.

As I mentioned earlier, Kroger has also improved its fundamentals, notably operating margin growth and return on equity (both A-rated). Kroger also scores well on earnings growth and cash flow (both B-rated). Meanwhile, the company could stand to work on its sales growth and its track record of beating analyst estimates, but overall it still receives a B for its Fundamental Grade.

Bottom Line: As of this posting, I consider Kroger a B-rated Buy.