On Friday, Evercore ISI increased its price target on Kroger (NYSE: NYSE:KR) shares to $70 from $67 while maintaining an Outperform rating. The stock, currently trading at $60.71, sits near its 52-week high of $61.37, having delivered an impressive 35.93% return year-to-date. According to InvestingPro analysis, Kroger appears slightly undervalued based on its proprietary Fair Value model.
The firm cited Kroger's third fiscal quarter results as evidence of strong management against a fluctuating consumer environment. With the company's identical store sales (ID sales) aligning with the industry benchmark for the first time since ending its relationship with Express Scripts (NASDAQ:ESRX) two years prior, the analyst expressed greater confidence in Kroger's ability to achieve its 8-11% total shareholder return (TSR) into 2025.
The third fiscal quarter's 2.3% ID sales growth was noted as keeping pace with the industry, marking a significant development for Kroger. The analysis also highlighted that excluding the impact of the Kroger Specialty Pharmacy (KSP) sale, the company's operations would have demonstrated stability in its operations, groceries, and administrative (OG&A) rate. Furthermore, an improvement in Kroger's first-in, first-out (FIFO) gross margin was observed, suggesting a potential return to the historical 1-2% rise in profit per store by 2025.
The analyst mentioned that the resolution of the proposed merger with Albertsons (NYSE:ACI) could either directly benefit shareholders through synergy accretion or indirectly through a buyback scenario if the deal does not materialize, thereby reducing uncertainty.
The forecast for Kroger's earnings per share (EPS) for the calendar years 2024, 2025, and 2026 remains largely the same at $4.47, $4.65, and $4.85, respectively. These projections take into account the modest beat in the third quarter and expectations that the fourth fiscal quarter results will align with current market estimates of 1.8% ID sales and $1.14 billion in FIFO operating profit.
In conclusion, the price target increase to $70 is based on applying a 14.5 times multiple to the projected calendar year 2026 EPS of $4.85. Currently trading at a P/E ratio of 15.85x and maintaining a 19-year streak of dividend increases, Kroger is recommended as the preferred value pick for investors seeking company-specific drivers and improved core operations, while also likely avoiding the challenges of tariffs and port disruptions into 2025. For deeper insights into Kroger's valuation metrics and growth potential, investors can access detailed analysis through InvestingPro's comprehensive research tools.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.