Wal-Mart Puts Pressure On Grocers, But Kroger Could Resist

Loop Capital Markets analyst Andrew Wolf reiterated a Hold rating on Kroger Co KR, with a price target of $32. The analysts sees annual earnings of just under $122 million and an EPS of $2.22 are estimated for fiscal 2017.

The analyst believes Wal-Mart Stores Inc WMT “has the most meaningful competitive effect on the supermarket industry,” and elaborated in a note on how its gains will lower that of competitors.

“Wal-Mart is taking share back from grocers at an accelerating rate,” said Wolf. First-quarter same-store sales grew 2 percent, a three-year best. Wal-Mart U.S. grocery sales also outperformed U.S. grocers by 2.9 percent. In 2016's Q4, outperformance was 1.6 percent.

The last time Wal-Mart outperformed supermarkets was 2009–2010, making the last two quarters a major inflection point.

Kroger Is Looking Better Than The Industry

Kroger is currently trading below all members of Loop Capital’s food merchandisers group except for SUPERVALU INC. SVU on comparative forward P/E and EV/forward EBITDA multiples.

Wolf noted that while Kroger’s same-store sales have slowed, an inflection point is expected for Q1 from down (0.7 percent) to flat.

Kroger is also pursuing a “click and collect” e-commerce strategy like Wal-Mart, which the analyst believes will be a growing aspect of grocery shopping in the future.

These trends will likely help Kroger stay above the industry average as Wal-Mart puts on pressure.