On Tuesday, Jefferies analyst has upgraded the stock rating of Kroger Co . (NYSE: NYSE:KR) from Hold to Buy, with a new price target set at $73.00, up from the previous $54.00.
The upgrade comes as Kroger, currently trading near its 52-week high with a remarkable 34.68% year-to-date return, continues to demonstrate strong market performance. The upgrade is based on the potential financial benefits that could follow the successful acquisition of Albertsons Companies Inc. (NYSE:ACI).
The analyst believes that if the deal is completed, there could be a double-digit percentage increase in earnings per share (EPS) and over 30% free cash flow (FCF) accretion through the optimization of ACI's working capital.
According to InvestingPro analysis, Kroger appears undervalued at current levels, suggesting potential upside aligned with the analyst's optimistic outlook.
In the event the merger does not proceed, Kroger is expected to retain approximately $6 billion in debt that was secured to finance the acquisition. This debt is anticipated to provide a cushion for the stock and potentially drive EPS growth through share buybacks.
Additionally, the analyst noted that Kroger has been experiencing an upward trend in foot traffic, indicating a positive shift in consumer behavior.
As a prominent player in the Consumer Staples sector with a market capitalization of $43.52 billion and a conservative beta of 0.47, Kroger has maintained dividend payments for 19 consecutive years, demonstrating strong financial stability.
Kroger's fuel business has also been highlighted as a significant contributor to the company's improved financial outlook. The fuel segment is now seen as structurally more profitable compared to its performance before the pandemic, providing an additional boost to the company's profitability.
The analyst's comments underscore the multiple factors contributing to the upgraded outlook for Kroger. The potential for increased earnings and cash flow from the Albertsons deal, the strategic use of debt for share repurchases, and the strong performance of the fuel business are all elements that support the analyst's optimistic view on the stock's future performance.
In other recent news, Kroger Co. has experienced several significant developments. BMO Capital Markets recently downgraded Kroger's stock from Outperform to Market Perform, citing uncertain market share trends and potential revisions to earnings per share (EPS) projections. However, the firm maintained its price target of $60.00.
Telsey Advisory Group, on the other hand, raised its price target for Kroger, expecting a 2.0% increase in identical sales and a 5.0% growth in adjusted EPS for the third quarter of 2024.
Guggenheim also adjusted its outlook for Kroger, maintaining a Buy rating and raising the price target in anticipation of a court decision regarding the merger with Albertsons Companies Inc. The merger, while lacking clear details, seems to have been factored into the current stock price, according to BMO Capital Markets.
In other company news, Kroger announced the departure of Stuart Aitken, Senior Vice President and Chief Merchant and Marketing Officer, effective January 2025. Additionally, the company amended its credit agreements related to its merger with Albertsons, providing enhanced financial flexibility. These are the recent developments in the ongoing strategic actions and performance of Kroger in the market.
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