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Kroger stock hits a ceiling: BMO sees little room for big gains

EditorEmilio Ghigini
Published 03/12/2024, 10:24
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On Tuesday, BMO Capital Markets adjusted its stance on Kroger Co (NYSE:KR), downgrading the stock from Outperform to Market Perform while maintaining a price target of $60.00.

The firm pointed out that while Kroger is expected to meet its earnings per share (EPS) targets for fiscal year 2025, any significant valuation increase would likely necessitate improved market share trends in the grocery sector or revisions to EPS projections upward. Currently, the analyst sees these factors as unlikely to provide the impetus for further stock valuation expansion.

The stock, currently trading at $60.15, sits near its 52-week high of $61.18, having delivered an impressive 34.68% return year-to-date. InvestingPro analysis reveals the company maintains a GREAT financial health score, with additional insights available in the comprehensive Pro Research Report.

The analyst's decision to downgrade comes with a slight reduction in the fiscal year 2025 EPS estimate, although it still aligns with the midpoint of the company's guidance. This suggests a cautious outlook on the stock’s growth prospects despite the company's performance meeting its stated goals.

The merger between Albertsons Companies (NYSE:ACI) Inc. and Kroger, which has been a topic of interest for investors, still lacks clear details according to the analyst. However, the market appears to have already factored in the potential benefits or drawbacks of the merger, as the analyst estimates that the possible EPS accretion from either outcome is now largely reflected in Kroger’s current stock price.

This change in rating reflects a shift in BMO Capital Markets' expectations for Kroger's stock performance. The analyst's commentary indicates a belief that Kroger's current valuation already accounts for the company's anticipated financial outcomes and potential strategic moves.

The maintenance of the $60 price target suggests that while the stock's rating has been downgraded, the firm's view on Kroger's value has not changed significantly. Investors may consider this information when evaluating Kroger's stock amidst the ongoing discussions and speculation regarding its potential merger with Albertsons.

In other recent news, Kroger has seen several significant developments. Telsey Advisory Group has raised its price target for Kroger, citing a forecasted 2.0% increase in identical sales and an anticipated 5.0% growth in adjusted earnings per share for 3Q24. G

uggenheim also adjusted its outlook for Kroger, maintaining a Buy rating on the stock and raising the price target amid anticipation of a court decision regarding Kroger's merger with Albertsons Companies Inc.

In terms of executive changes, Kroger announced the upcoming departure of Stuart Aitken, Senior Vice President and Chief Merchant and Marketing Officer, effective January 2025. The company has not yet detailed any immediate succession plans.

Kroger has also amended its credit agreements in relation to its merger with Albertsons, providing the company with enhanced financial flexibility.

Finally, Kroger has added Disney (NYSE:DIS) streaming services to its Boost by Kroger Plus membership program as an additional benefit. These developments highlight the ongoing strategic actions and performance of Kroger in the market.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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