What Strategy Did The Kroger Co. (KR) Use to Get a Rating Upgrade from Analysts?

We recently compiled a list of the 10 Stocks Receiving a Massive Vote of Approval From Wall Street Analysts. In this article, we are going to take a look at where The Kroger Co. (NYSE:KR) stands against the other analyst-approved stocks.

European equities faced challenges in extending recent gains seen in the US, as market participants awaited new drivers for momentum. US equity futures remained stable in subdued holiday trading conditions following another record-breaking session for major indices, buoyed by strong performances in technology stocks, particularly in artificial intelligence sectors. Conversely, the broader European Stoxx 600 edged lower by 0.2%, stepping back after consecutive days of modest gains, amid ongoing concerns over political tensions in France.

Bond yields across the eurozone saw marginal increases, reflecting cautious investor sentiment. Meanwhile, the Brazilian real came under pressure ahead of an imminent central bank rate decision. In monetary policy news, Federal Reserve officials reiterated a patient stance on potential interest rate adjustments, highlighting the need for sustained evidence of easing inflationary pressures. Fed Governor Adriana Kugler suggested that a rate cut could be appropriate "sometime later this year," contingent upon economic developments aligning with expectations. St. Louis Fed President Alberto Musalem echoed this sentiment, emphasizing the importance of data confirming a conducive economic environment over multiple quarters.

Turning to commodities, oil prices retreated from recent highs as reports indicated a build-up in US crude inventories, dampening optimism despite ongoing strength in equity markets. Brent crude declined towards $85 per barrel after earlier touching its highest level since early May, while West Texas Intermediate held steady above $81 per barrel. The American Petroleum Institute's data pointed to a third consecutive weekly increase in US crude stockpiles, with additional rises noted at major storage facilities like Cushing, Oklahoma. Overall, market participants navigate a landscape characterized by cautious optimism amid lingering uncertainties. The focus remains on economic data releases and geopolitical developments, which are expected to provide clarity and direction for global markets in the days ahead.

U.S. retail sales in May showed marginal growth, with the Commerce Department reporting a modest 0.1% increase, which was downwardly revised from April's figures. This subdued uptick suggests that economic activity in the second quarter remained lackluster. Analysts caution that the reported slowdown in retail sales might be somewhat exaggerated due to lower gasoline prices, which dragged down receipts at service stations. According to Reuters, the broader economic landscape is being shaped by persistent inflationary pressures and rising interest rates, factors that are increasingly influencing consumer behavior. Many households are focusing on essential purchases while scaling back on non-essential spending, reflecting a cautious approach amidst economic uncertainties. Economists view the tepid retail sales data as bolstering the case for a potential interest rate cut by the Federal Reserve in September, despite the central bank's recent decision to delay rate adjustments until later in the year.

In contrast to the subdued retail sector, manufacturing production surged 0.9% in May, rebounding strongly from April's decline. This uptick in manufacturing output, particularly in durable goods and nondurable goods sectors, signals a potential revival in industrial activity. However, economists remain cautious about the sustainability of this recovery, citing concerns over high interest rates dampening business investment and a strong U.S. dollar limiting demand for manufactured goods in global markets. Overall, while retail sales paint a cautious consumer spending picture, the rebound in manufacturing production offers a glimmer of optimism for economic growth in the coming months, albeit amidst a backdrop of ongoing uncertainties and policy considerations by the Federal Reserve.

The Bank of England is poised to maintain its current interest rates despite headline inflation hitting the targeted 2% mark, marking a significant achievement not seen in nearly three years. Traders are increasingly convinced that an immediate rate cut is unlikely, with only a minimal 5% probability priced into money markets for a reduction during Thursday’s BOE meeting, down from earlier forecasts. Anticipation for an August rate cut has also eased to around 30%. While the 2% inflation milestone is noteworthy, driven largely by declining energy prices, market attention remains on services inflation, which exceeded expectations at 5.7%. Core inflation, excluding volatile components like energy and food, remained elevated at 3.5%, well above the central bank’s preferred target. James Sproule, chief economist at Handelsbanken, emphasized that while recent seasonal factors have contributed to easing food prices, the outlook for the rest of the year suggests potential inflationary pressures could re-emerge, especially in services inflation linked closely to wage dynamics. The Bank of England, keeping a watchful eye on economic indicators amidst an impending national election, faces a delicate decision on future rate cuts. Despite encouraging inflation readings, concerns persist over stubbornly high wage growth, which stood at 6% excluding bonuses in June, complicating monetary policy decisions. Looking ahead, analysts speculate whether the BOE will opt for a rate adjustment in August or September, closely monitoring liquidity conditions and any shifts in economic sentiment post-election. Governor Andrew Bailey’s recent comments suggest a cautious optimism in the central bank’s inflation forecasts, aligning with a similar stance taken by the European Central Bank in its recent policy adjustments.

We listed 10 companies that were upgraded by analysts and ranked them by the change in their market prices. Positive changes signal that the market participants agree with the analysts’ assessment.

A customer buying an item at a checkout counter in a grocery store.

The Kroger Co. (NYSE:KR)

Price Reaction after the Upgrade: +0.93(+1.82%) 

On June 17, Telsey Advisory Group reaffirmed its Outperform rating on The Kroger Co. (NYSE:KR), maintaining a price target of $62.00. This decision reflects confidence in The Kroger Co. (NYSE:KR) strategic initiatives despite a mixed consumer spending environment. The Kroger Co. (NYSE:KR) strategic focus on freshness, digital capabilities, and customer loyalty is expected to counterbalance challenges such as slower unit recovery and price deflation in certain categories. The U.S. Census Bureau reported fluctuations in Food & Beverage Stores retail sales, with increases in February and March followed by a decrease in April, alongside a steady climb in the Food-At-Home Consumer Price Index (CPI) from February through May. The Kroger Co. (NYSE:KR) is expected to benefit from its "Leading with Fresh and Accelerating with Digital" strategy, aiming to expand market share by entering new regions, enhancing product offerings, improving digital interactions, and fostering customer loyalty. This transition to a food-first business model is anticipated to open new avenues for profitability, particularly in personal finance and advertising/media, which are expected to significantly enhance The Kroger Co. (NYSE:KR) profit profile over time.

In other developments, The Kroger Co. (NYSE:KR) has proposed a merger with Albertsons Companies Inc., which includes the sale of an additional 166 stores to C&S Wholesale Grocers to address antitrust concerns, as part of the ongoing process to secure regulatory approval for the merger. The Kroger Co. (NYSE:KR) earnings guidance for 2024 is set at $4.40 per share, with potential to exceed $5 in 2025, provided EBIT growth resumes and the share repurchase is executed. Revenue projections indicate a stable trajectory, with $150,039 million expected for 2024. Additionally, analysts from Wells Fargo have upgraded Kroger's stock to Overweight and raised the price target to $65.00, reflecting renewed confidence in the company's market position and growth potential. Following Telsey's reaffirmation of its rating, The Kroger Co. (NYSE:KR) stock price increased by 1.82%, indicating a strong market response and confidence in the company's strategic direction and growth prospects.

In its fourth quarter 2023 investor letter, Oakmark Global Fund stated the following regarding The Kroger Co. (NYSE:KR):

“The Kroger Co. (NYSE:KR) (U.S.) is the second-largest grocery retailer in America, behind only Walmart. Although the grocery industry is highly competitive, Kroger’s scale advantages allow it to offer a more compelling value proposition than smaller peers and earn higher returns on capital. In recent years, the market has assigned Kroger a lower multiple due to concerns that e-commerce would disrupt traditional brick-and-mortar grocery businesses. However, we believe Kroger’s performance through the pandemic highlighted that its store footprint, distribution infrastructure, technology investments and strong brand all position the company well for a world with higher online grocery adoption. The stock trades for just 10x our estimate of next year’s EPS, which we believe is attractive given Kroger’s competitive positioning and earnings growth outlook. The pending merger with Albertsons could accelerate the company’s earnings growth and produce additional scale advantages. If the merger is not approved, the company will have the capacity to return over 25% of its market cap to shareholders.”

Overall KR ranks 5th on our list of the stocks that are receiving a massive vote of approval from Wall Street Analysts. You can visit 10 Stocks Receiving a Massive Vote of Approval From Wall Street Analysts to see the other analyst-approved stocks that are on hedge funds’ radar. While we acknowledge the potential of KR as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than KR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.