Kroger: A Look At Q1

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About: The Kroger Co. (KR)
by: Gainsboro Capital
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Gainsboro Capital
Growth, long-term horizon, long only, contrarian
Summary

Revenue came in at $37.5 billion (+3.4 y/y, $230 mln above consensus), net income just over $2 billion, $0.73 EPS ($0.10 above consensus).

Digital sales +66% y/y; we continue to see potential in the company’s digital initiatives, online ordering, and home delivery; Ocado and Home Chef underline management's innovative stance.

FY18 ID sales guidance increased to 2.0-2.5%; low-end of adj. EPS increased to $2.00-2.15 (vs. $1.95-2.15 prior); CapEx (ex-M&A): $3 bln; effective tax rate: 22%.

Company trades at 9x LTM EPS, 13x FY18 EPS, 7x EBITDA; valuation reasonable, below industry peers. Outlook remains bright; GC FY18 EPS of $2.04 with 17x P/E results in $35 PT.

Several days ago, The Kroger Company (KR) released first quarter earnings, beating both top and bottom line estimates, as well as upgrading the lower-end of FY18 guidance. As a result, shares surged after