Kroger's Stock Met Its Value Potential; Pivotal Downgrades To Hold

Kroger Co KR spiked last week on a significant earnings beat and drove the stock just shy of one analyst’s optimal valuation.

The Rating

Pivotal Research Group analyst Ajay Jain downgraded Kroger to Hold, but raised his price target from $30 to $31.

The Thesis

By most standards, the grocer’s story is strong.

“[T]he stars seem to be aligning for Kroger: i) from an execution standpoint and the impact of Kroger’s Re-Stock initiative; ii) favorable earnings impact from the c-store sale proceeds; iii) recent transactions with Ocado and Home Chef to improve Kroger’s omni-channel capabilities,” Jain wrote in a Monday note.

The analyst sees “strong possibility” for a meaningful annual guidance raise but, considering near-term disruption from store optimization, claims insufficient upside to remain bullish on the stock.

“Right now, the stock has simply gone up too far and too fast from a valuation perspective,” Jain wrote. “This falls into the category of a nice problem to have for Kroger investors.”