S&P Sees Near-Term Valuation of Kroger Co (NYSE:KR) Hurt By Continued Food Deflation
S&P Capital IQ believes that Kroger Co (NYSE:KR) faces the near-term valuation risks citing the persistent food deflation. However, the brokerage did not change its rating and maintained its Buy rating on the company’s shares. Following this, the stock which traded in the red in the pre-market trading, bounced back or erased most of the losses in the normal trading hours.
Analyst Agnese also retained his 12-month target price of $34 on the stock with a P/E of 15.1, which is 5 percent below the company’s five-year average of 15.9X. The analyst slashed his EPS estimate for the fiscal year 2018 from $2.39 to $2.28 while reducing fiscal year 2017 EPS estimate by $0.02 a share to $2.13.
While pointing out that third quarter EPS fell short by a penny, S&P Capital IQ cited that identical store sales growth of 0.1 percent also fell below its 0.5 percent expectations. The firm attributed this to deflationary pricing pressure. The brokerage does not see any respite from this until the first half of the fiscal year 2018.
However, for the long-term, the investment advisory firm sees Kroger gaining from share, as well as, the return of inflation. Therefore, it preferred to retain the rating and price target on the stock.
Earlier in the day, Kroger reported net earnings of $391 million, or $0.41 per share, on revenue of $26.6 billion for the third quarter. While EPS was in line with the consensus, revenue was above the estimates. However, the worry was in respect of full year guidance as the company reduced its top-end of earlier outlook and next year.
At time of writing this, the stock traded flat at $32.30.
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