As what I expected on chart 1.1, this week the market might do some price-correction. And yesterday's trade was distinctly negative after a big run so far this month. Coming off the sizable rally, market participants took some money off the table today ahead of Fed Chair Powell's speech on Wednesday and worries that a slew of economic data releases this week could reflect a need to mark down earnings even further. Which is exactly like what I mentioned "it is likely that market will do price correction recently, and 3980ish is somewhere I 'd like to try some buys for this week."
Back to Kroger
KR
trade itself. Kroger (
KR
) has been a strong performer this year, as the grocery store company has shown strong fundamental resilience even amidst inflation and tough comparables. I have been quite bullish on the stock with the impression that some patience was needed to wait for the multiple to re-rate. While the stock still trades at 11x earnings, the stock's resilience amidst choppy markets suggests that, at the very least, the market is rewarding the stock as a potential inflation winner. The second quarter investor presentation showed strong growth of 5.8% in identical store sales. Identical sales of Kroger brands were up 10.2% and digital sales were up 8%. Excluding fuel, sales increased 5.2% compared to the same period last year. Non-GAAP EPS came in at $0.90, up 12.5% year over year. Free cash flow of $640 million during the quarter enabled Kroger to repurchase $309 million of shares and distribute $153M in dividends. On Sept. 9, the Board authorized a new $1B share repurchase program. Now share repurchases are paused ahead of the planned acquisition to reduce debt. Kroger raised its full-year outlook, expecting identical sales excluding fuel to grow 4% to 4.5% YoY. Adjusted net earnings per diluted share are expected at $3.95 to $4.05, representing growth of about 9% YoY.
On Oct. 14, 2022, Kroger announced its intention to merge with Albertsons. Albertsons is a well-known food and drug store in the United States and posted sales of $72B in 2021. The acquisition will create strong synergies, reducing costs and giving both companies a strong competitive advantage over competitors. Albertsons' food and drug stores are not located in areas where Kroger operates, so this will ensure better geographic sales distribution. Consolidated sales of both companies will be about $210 billion.
Inflation is up 7.7% year-over-year and food inflation will greatly benefit Kroger. Several analysts are upgrading Kroger. Evercore ISI sees a favorable risk-reward with food inflation as a catalyst. They expect a CY23 EPS of $4.20 and assign a base case value of $56. At 11.5x CY23 EPS, Kroger trades at a 35% discount to the S&P500. If the merger with Albertsons is approved, Evercore ISI sees even greater upside potential ahead. The bull case would lead to a share price above $70.
Strong earnings, improving prospects, a favorable risk/reward due to the merger with Albertsons, favorable stock valuation and shareholder-friendly management are strong catalysts for the stock price and should give investors good prospects from an investment in Kroger.
From the tech side of analysis, 42.6ish is weekly basis support level, and 46.6ish is short term support and I would like to try some buy somewhere around 48ish, if SPX(
SPX
) holding 3950ish level well. And I'm cautiously optimistic think
KR
will most likely to fill the gap. Please feel free to express your ideas and thoughts in the comment section.