On Monday, Guggenheim maintained a Buy rating on Kroger Co (NYSE:KR) and increased the stock's price target to $65 from the previous $63. The firm's analyst cited Kroger's growing capacity to deliver an 8-11% total shareholder return (TSR) in various operational environments as a key reason for the positive outlook on the stock. This capability is seen as a defining feature of Kroger's financial narrative.
The optimism appears well-founded, as InvestingPro data shows Kroger has delivered impressive returns, with a 32.62% YTD price return and maintains a strong financial health score of GOOD.
The analyst highlighted several factors contributing to Kroger's strength, including diverse profit streams, such as those from Kroger Personal Finance (KPM), reduced digital operation losses, gains in health and wellness market share, and strategic cost-cutting measures.
Additionally, the potential for Kroger to use its available leverage and free cash flow (FCF) for share buybacks was noted as a significant factor. Supporting this view, InvestingPro metrics reveal Kroger's solid financial position with a current ratio of 1.54 and a 19-year track record of consecutive dividend payments.
Despite the ongoing investor skepticism regarding the supermarket business model, particularly in comparison to mass retailers like Walmart (NYSE:WMT), the analyst believes that Kroger's stock price has room to grow. The newly set price target of $65 assumes the current valuation remains unchanged, which could shift, especially if the proposed acquisition of Albertsons Companies Inc (NYSE:ACI) does not go through and Kroger initiates a substantial accelerated share repurchase (ASR) program.
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