The Kroger Co. (KR) appears strong as it embraces the earnings season with favorable stock price movement, a strong earnings surprise history, positive estimate revisions and strong fundamentals.
Stock Trending Higher
Shares of this Cincinnati, OH-based grocery retailer have surged roughly 95% in the past year, demonstrating its inherent strength. The stock also hit a 52-week high of $68.95 yesterday, reflecting its current bullish trend.
Positive Earnings Surprise History
The company’s primary strength is its earnings surprise history. In the trailing 13 quarters, Kroger has beaten the Zacks Consensus Estimate in 12 quarters while being in line with the consensus in only one. The average earnings beat over these 13 quarters comes to an impressive 6.5%, including 13.1% in the last reported quarter.
Kroger posted third-quarter fiscal 2014 earnings of 69 cents a share that beat the Zacks Consensus Estimate of 61 cents, and surged 30.2% from the prior-year quarter, aided by its Customer 1st Strategy, increase in sales and strong fuel margins. The acquisition of Harris Teeter also supported the bottom line.
Consensus Estimate Moving Up
Following the splendid third-quarter results, management projected full-year fiscal 2014 earnings between $3.32 and $3.36 per share, up from its earlier forecast of a range of $3.22 to $3.28. The encouraging outlook triggered an uptrend in the Zacks Consensus Estimate, which climbed 2.4% to $3.37 and nearly 1.1% to $3.69 per share for fiscal 2014 and 2015, respectively, over the past 60 days.
Likely to Beat Earnings Estimates in Q4
Our proven model shows that Kroger is likely to beat earnings estimates this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Kroger’s Zacks Rank #2 (Buy) and ESP of +2.27% make us reasonably confident of a positive earnings beat. The company is expected to report fourth-quarter results on Mar 5, 2015.
Strong Fundamentals
We believe that the company has enormous opportunities to augment identical supermarket sales, alleviate gross margin pressure, improve operating margin and enhance return on invested capital. Moreover, management continues to deploy capital to concentrate more on remodels, merchandising and other viable projects. The strong fundamentals, along with the company’s long-term earnings per share growth rate of 11.5%, could prove to be a solid bet for investors.
Other Stocks That Warrant a Look
Other favorably ranked stocks include SUPERVALU Inc. (SVU), sporting a Zacks Rank #1 (Strong Buy), Diamond Foods, Inc. (DMND) and United Natural Foods, Inc. (UNFI), both carrying a Zacks Rank #2.
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