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Kroger supermarket chain may feed rally in share price -Barron's
[NEW YORK] Shares of Kroger Co appear poised to rise as investors realise that the US supermarket chain is trading at a discount and luring customers away from rivals, Barron's reported.
Kroger's price-earnings ratio has tumbled to 11.5 times future earnings, from 18.8 times in early 2016, Barron's said.
That puts it at a 30 per cent discount compared with the Standard & Poor's 500 index, and triple the average discount of about 9 per cent over the past decade, Barron's said.
Spending to expand the digital business will weigh on Kroger's earnings in the current fiscal year, Barron's said, but analysts expect earnings to rise 14 per cent two years from now.
Kroger's market share has risen about 2 percentage points since 2009, and hit 10.3 per cent last year, placing it second behind Walmart Inc and Sam's Club, which have a combined 21.2 per cent, Barron's said.
Kroger faces competition from Walmart and Amazon.com , which spent US$13.7 billion to acquire Whole Foods last year, as well as smaller chains that are offering more food, Barron's said.
But Kroger's large franchise includes 2,800 grocery stores under many brands, 800 convenience stories and several hundred jewelry outlets, Barron's said.
If the company can produce growth in the next fiscal year and investors decide to push the stock up to 14 times forward earnings, the stock could hit US$30, producing a 25 per cent return, including dividends, Barron's said.