Kroger: Fundamentally Sound With An Added Perk

Apr.26.13 | About: Kroger Co. (KR)

Kroger Co (NYSE:KR) is a large-cap value company in the consumer services sector which operates 3,574 supermarkets, convenience stores and jewelry stores under Kroger, Ralphs, KWIK Shop and other names.

Over the past three years this company has an earnings growth rate of 14% (76% in the last quarter) and a sales growth rate of 8% (13% in the last quarter).

Even more impressive is the fact that there have been significant positive earnings surprises in five of the last five reports as shown in the chart below:

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Analysts have been so impressed that growth projections have been bullish and that trend has continued as shown below:

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Why this is a strong candidate for your portfolio:

In addition to having an earnings per share growth rating in the top 10% of all equities traded on US exchanges, KR is a defensive play with a low beta (0.66) or historical volatility. This is a positive given the current global outlook. In addition, KR offers a 1.80 percent dividend yield.

The added perk:

There is an added bonus to this fundamentally sound equity. KR is a stock on The Blue Collar Investor watch list of eligible candidates for covered call writing. This means that in addition to potential share appreciation, additional profits can be generated by selling out-of-the-money call options. Let's look at a current 2-month options chain as the stock trades at $34.27:

Selling the $35 call option will generate an additional 2.2% over the next 7 weeks and allow share appreciation up to $35 (an additional 2.1%). This creates a possible 7-week return of 4.3% if the price appreciates to the $35 strike price.


Because of its strong fundamentals and strong growth projections along with its defensive nature and dividend yield. KR offers the added benefit of a second income stream by selling out-of-the-money call options to bolster profits.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in KR over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.