On Thursday, BMO (TSX:BMO) Capital Markets maintained its Market Perform rating on shares of Kroger Co . (NYSE: NYSE:KR) but increased the stock's price target from $60.00 to $63.00. This adjustment comes in the wake of Kroger's recent announcement regarding the termination of its merger agreement with Albertsons Companies Inc. (NYSE:ACI) and the unveiling of its share repurchase plans.
The firm's decision to enhance the price target is based on the anticipated accretion to earnings per share (EPS) from Kroger's $5 billion accelerated share repurchase (ASR) program. BMO Capital estimates that the ASR could result in approximately a 4% increase in EPS for fiscal year 2026, prompting the firm to adjust its future earnings projections for Kroger accordingly.
In the announcement, Kroger revealed its share repurchase initiative after the market closed on December 11, 2024. The repurchase plan follows the discontinuation of the proposed merger with ACI, which was a significant corporate development for the company.
BMO Capital continues to apply a 13 times price-to-earnings (P/E) ratio in determining the new target price. The firm's analysis suggests that while Kroger is effectively navigating the competitive landscape and maintaining stable gross margins (GM%), particularly as it improves digital margins, further valuation expansion beyond the 13 times multiple might hinge on the company's ability to capture a larger share of the grocery market.
In summary, BMO Capital believes that for Kroger's valuation to expand further, the company would likely need to exhibit stronger trends in gaining grocery market share. The firm's outlook reflects a cautious optimism about Kroger's industry positioning and its ability to manage competitive pressures while seeking opportunities for growth and shareholder returns.
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