BofA Turns Bearish On Kroger Ahead Of Tough Comparisons

Grocery chain Kroger Co KR faces difficult comparisons ahead and the stock's valuation could be pressured by negative identical sales in fiscal 2022.

The Kroger Analyst: BofA Securities analyst Robert Ohmes downgraded Kroger's stock from Neutral to Underperform with a price target lowered from $40 to $28.

The Kroger Thesis: The COVID-19 pandemic resulted in a surge of demand for stockpiling and the upcoming one-year anniversary means Kroger's identical sales will trend negative, Ohmes wrote in the note.

The trend of year-over-year sales declines should start next week as peak stockpiling likely took place in the third week of March 2020. At that time, supermarket sales were up 96% year-over-year compared to 2019.

Related Link: Can Grocers Sustain The 'Pre-Christmas Bump'?

Kroger may also feel the need for more aggressive promotional activity in 2021 and its ongoing build-out and scaling of Ocado face challenges amid the shift towards same-day pickup and delivery.

Finally, the combination of potential stimulus payments, along with pent-up demand for restaurants, could add even more pressure for the food retailer group as a whole.

Bottom line, Kroger's stock is trading at 12 times P/E, and this "leaves room for downside" as the grocery segment will likely return to "normal," the analyst wrote.

KR Price Action: Shares of Kroger were trading lower by 1.6% Tuesday at $33.05.

(Photo: Virginia Retail via Wikimedia Commons)