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Kroger Rallies to All-Time High

The Kroger Company (KR) is trading higher by more than 5% in Thursday’s pre-market after beating Q4 2021 estimates and raising fiscal year 2023 guidance. The supermarket giant posted a profit of $0.91 per-share, beating estimates by $0.17, while revenue rose a healthy 7.5% year-over-year to $33.05 billion, about $400 million higher than consensus.  Oddly, the company offered no guidance for the current year but stated “in 2022, we are increasing capital investments in strategic priorities that will drive sustained future earnings growth.”

Managing Razor-Thin Profit Margins

Kroger is executing a multi-faceted growth strategy, supported by the concepts of ‘’Leading with Fresh’ and ‘Accelerating with Digital.’ Simply stated, the company is touting freshness to keep younger customers from shifting to higher cost shopping at Whole Foods and other millennial favorites while using state-of-the-art technology to lower costs and increase razor-thin margins in an inflationary environment. Those initiatives now project 8% to 11% long-term shareholder returns, above expectations for this once sleepy market corner.

Telsey Advisory Group analyst Joe Feldman upgraded Kroger to ‘Outperform’ ahead of the report, noting “We expect multi-year growth to be driven by: 1) focus on fresh and private brands; 2) expansion of digital and delivery, including its partnership with Instacart; 3) growth of Ocado sheds in existing and new geographies; 4) selective expansion of its digital marketplace (including partnerships, like the one with Bed, Bath & Beyond); and 5) leverage of the loyalty program (including Boost, its newly launched paid membership)”.

Wall Street and Technical Outlook

Wall Street consensus stands at a modest ‘Hold’ rating based upon 7 ‘Buy’, 1 ‘Overweight’, 13 ‘Hold’, and 2 ‘Underweight’ recommendations. In addition, five analysts recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $34 to a Street-high $56 while the stock is set to open Thursday’s session less than $4 below the high target. Those cautionary ratings seem way too low, given exceptionally strong performance in recent quarters.

Kroger entered a strong uptrend when the pandemic broke out in 2020, with gains underpinned by anxious customers cleaning out shelves of essential household goods. The uptick reached 2016 resistance in January 2021 and reversed, while a July rally generated an historic breakout that hit 50.15 in January 2022. The stock has now broken out above that resistance level, setting the stage for additional gains. The company pays a 1.70% annual dividend yield.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

This article was originally posted on FX Empire

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