A Stable Stock for Your Portfolio

Yashu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Positive earnings, analyst upgrades and a stock price at a 52-week high; everything seems to be going great for this supermarket retailer. With grocers getting intense pressure from their competitors, this particular grocer managed to hold on well and set new highs this season. Let us now see what Kroger (NYSE: KR) actually did to make it one of the analysts’ top picks.

Things That Worked…

Customer Comes First - this is the strategy that is working perfectly for the company. Even the company’s CEO noted in a recent press release that the company intends to capitalize on the Customers First strategy to keep up its long term momentum. Thanks to this mantra the company has seen growth in the number of loyal household shoppers.  With magnified customer analysis and a wider range of selections for its customers, Kroger is showing its increased commitment to keeping its existing customers and bringing in new ones.

Kroger finally brought a smile to the faces of its shareholders when it released its second quarter earnings. It posted earnings of $0.51, up 24.4%. Using various tactics like giving discount coupons and insisting on feedback helped them further understand their customers. A busy company always looks for expansions, and so is the case with this retailer; Kroger plans to invest as much as $200 million annually for store expansions in existing and new markets, and also looks to enhance profitability of the coming quarters through operating efficiencies.

Stock Buyback- What it means to You…

Buy-back can be an interesting and sometimes a confusing area for investors.  A company generally repurchases its own shares when it has surplus cash and they feel that their stock is undervalued. Kroger has recently announced a $500 million share repurchase program, which added to the bullish stance many analysts’ have with this stock. This buyback program certainly shows the amount of confidence the management has in the long-term fundamentals of the company.

Value for Money…

Competition has been severe in the grocery business in recent months. The severity has been such that companies like Safeway (NYSE: SWY) have seen a huge decline (17%) in earnings in the last year. With no innovations and a tough economic environment, Safeway has seen declining market share compared to its competitors. Kroger has been an opportunist in this regard. It has managed to increase its market share by over 200 basis points- this share is defined as the overall share of the products Kroger sells in markets where it has established stores.

My Takeaway…

Kroger is a relatively cheap company with great earnings potential. It currently trades at a 9.5x forward earnings, which looks quite attractive to many analysts on the Street. With Safeway and Supervalu (NYSE: SVU) losing market share, analysts see room for Kroger to gain this season against its peers. Supervalu had recently reported earnings that were below the street expectations. Its gross margin saw contractions on account of competitive pricing, higher advertisement disbursal and weaker sales across all segments. With fewer growth strategies and innovations by the management, Supervalu looks to me as an underperformer in the coming months, especially when compared to Kroger.

With earnings upgrades and expansions in progress, Kroger looks to me an interesting stock for the coming months. Kroger would definitely look good in your portfolio as a long term bet.


yashup has no positions in the stocks mentioned above. The Motley Fool owns shares of Supervalu. Motley Fool newsletter services recommend Supervalu. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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