The Kroger Co. (KR) stock is trading around $25.15, close to its 52-week high of $25.44, up 10% in the past 1-year. The stock trades at a P/E multiple of 10 times, and a forward multiple of 9 times. The stock yields 2.5%. The company's peer Whole Foods (WFM) trades with a P/E multiple of 38 times, and a forward multiple of 33 times. The Fresh Market (TFM) is trading with a P/E multiple of 44 times, and a forward multiple of 35 times. Both Whole Foods, and The Fresh Market are up 40-45% in the past 1-year. Does Kroger still present an opportunity to invest?
Fundamental positives for Kroger are: The company has ample liquidity on its balance sheet, which includes a $2 billion revolving credit facility, and cash of $238 million. Also, the company is expected to generate $1.1 billion in free cash flow in FY2012. In 2013, management is expected to refinance $1.5 billion in debt, which matures in 2013-2014. No other significant maturities are due in the short-term.
On October 10th, Kroger management held a successful Investor day with a positive tone for investors. Management reiterated FY2012 guidance of $2.35-$2.42, but more importantly, raised long-term EPS growth outlook to 8-11%, above the previous guidance of up 6-8%. Management expects to continue to return cash to shareholders in the form of dividends, and possibly increase the dividend over time. In September 2012, the company increased its dividend by 30% to 15 cents. If the company continues to outperform, the likelihood of a further increase is possible.
The share repurchase program was increased to $500 million from the $350 million remaining from the previous plan. This initiative of the company will provide downside support for the stock.
Kroger maintains a strong competitive position, which includes stores in 42 major markets. The company has a leadership or number 2 positioning in a majority of those markets.
Risk related to investing in Kroger greater inflation pass-through, and any obstacles that could slow the company's growth plans.
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