By Sam Boughedda
Evercore ISI upgraded Kroger (NYSE:KR) to Outperform from In Line, raising the price target to $56 per share from $49 in a note Wednesday.
Analysts told investors in a note that the firm sees a favorable risk-reward for Kroger.
"Our view is increasingly that food inflation will be higher for longer with trade-down into food at home categories, we are raising our Kroger CY23 ID sales and EPS outlook to $4.20, and assigning a base case value of $56," wrote the analysts. "Mid $ 30's downside (~10x bearish $3.50 EPS) is the risk if grocery degrades into a 'food fight,' yet we see above trend industry demand as likely with inflation likely above the 1-2% norm."
The analysts added that Evercore's survey work finds grocers "relatively well-positioned" for a moderating retail landscape. They added that consumers see grocers as a likely restaurant trade-down beneficiary with prices 30-40% cheaper.
"We like KR's pass-through power and M&A kicker amidst an inflationary backdrop, with the risk reward appealing at 11.5x CY23 PE. Our merger accretion analysis shows 35%+ EPS accretion is possible in 2-3 years if all goes well with ACI in a Bull Case, with mid $ 30's bear case downside if the food fight environment suddenly returns," they concluded.