One of the leading grocery retailers, The Kroger Co. (KR) seems to be on a roll as, driven by its impressive second-quarter fiscal 2014 earnings, stable financial position and strategic initiatives, the company hit a 52-week high of $54.38 on the last trading day. However, it eventually closed at $53.92, amassing a year-to-date return of 38.8%.
Kroger’s Customer 1st strategy enriches shopping experience and convinces buyers to return to the store. In the last concluded quarter, the company posted earnings of 70 cents a share that came a penny ahead of the Zacks Consensus Estimate, and surged 16.7% from 60 cents earned in the prior-year quarter.
Also, this encouraged management to raise its earnings guidance. Kroger now projects fiscal 2014 earnings between $3.22 and $3.28 per share, up from its earlier range of $3.19 to $3.27, and reflecting year-over-year growth of 13% to 15%.
Apart from this, the company recently revealed its plan to utilize its free cash to boost stakeholders’ return by announcing a dividend hike. Kroger, which competes with Target Corporation (TGT), raised its quarterly dividend by 12% to 18.5 cents (or 74 cents annually) from 16.5 cents a share (or 66 cents annually). Shares of the company have climbed 2.7% since this announcement.
Kroger’s dividend hike reflects its focus on boosting shareholder value, underscores its healthy financial position and instills confidence among investors about this Zacks Rank #2 (Buy) stock. Since investors prefer an income-generating stock, a dividend-paying stock is always preferred.
Further, management continues to deploy capital to concentrate more on remodels, merchandising and other viable projects. Kroger also remains optimistic on its acquisition of Harris Teeter that is helping it expand to high-growth markets including Delaware, Florida, Maryland and Washington.
Additionally, Kroger is currently trading at a forward P/E of 16.4x, a 2.9% discount to the peer group average of 16.89x. Also, its last traded price is 5.8% below the Zacks Consensus average analyst price target of $57.27, leaving room for an upside potential. All these factors speak positively about the company, highlighting its growth prospects.
Kroger’s customer-centric business model provides a strong value proposition to consumers. It is well positioned to continue its growth momentum, primarily through identical supermarket sales growth and cost containment efforts.
Other retail stocks looking attractive at current levels include Companhia Brasileira de Distribuicao (CBD) and Citi Trends, Inc. (CTRN), each carrying a Zacks Rank #1 (Strong Buy).
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