The Kroger Co - Growth & Income

If there is one industry that can survive a recession, it's grocery stores. People may cut back a bit or trade down to generic brands, but they still have to eat. The Kroger Co (KR) is one of the largest supermarket chains in the U.S., and the company weathered the last recession quite well.

Kroger recently reported solid results for the second quarter of 2010, marked by strong same-store sales. Management expects this trend to continue for the rest of 2010, too, which has prompted analysts to raise their estimates higher.

Second Quarter Results

Kroger recently reported its results for the second quarter of 2010. Earnings per share came in at $0.41, a 5% increase over the same quarter in 2009, and 14% ahead of the Zacks Consensus Estimate. It was Kroger's third consecutive earnings surprise.

Total sales increased 6.0% over the same quarter in 2009. Excluding volatile fuel revenue, same-store sales were up 2.7%.

Meanwhile, operating profit declined 1.0% over the same period in 2009.

Outlook

Management gave guidance following its third quarter earnings release. For 2010, the company expects to earn between $1.60 and $1.80 per share on same-store sales growth of 2.0%-3.0%.

The Zacks Consensus Estimate for 2010 is within guidance at $1.77, corresponding to a 3% increase over 2009 EPS. The 2011 estimate is currently $1.97, equating to 11% EPS growth. It is a Zacks #2 Rank (Buy) stock.

Dividend

Kroger has increased its dividend at a compound annual growth rate of 13% since 2006. It yields 1.8%.

The company has a payout ratio of 23%, which is in-line with most of its peers. For instance, Supervalu (SVU) pays out roughly 19% of its earnings in dividends, while Safeway (SWY) pays out 32%. Southeast supermarket operator Ruddick Corp (RDK) has a payout ratio of 21%.

Fundamentals

Kroger is relatively cheap, trading at just 12.9x forward earnings, compared to the industry average of 16.6x. Its price to sales ratio is just 0.2, well below its peers at 0.5.

The stock has been essentially flat over the last 12 months.

Kroger was founded in 1883 and is headquartered in Cincinnati, Ohio. It has a market cap of $14.5 billion.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

 
KROGER CO (KR): Free Stock Analysis Report
 
Zacks Investment Research