Kroger shares remain in the buy zone as the company raised its FY outlook

By: Stanko Iliev
Stanko Iliev
Stanko dedicates himself to providing investors with relevant information they can use to make investment decisions. He loves the… read more.
on Dec 14, 2020
Updated: Dec 15, 2020
  • Kroger shares are still undervalued relative to the other retail companies
  • Total revenue has increased by 6.3% Y/Y to $29.72B in Q3 while GAAP EPS was $0.80 (beats by $0.16)
  • If the price jumps above $33, the next target could be around $35

Kroger (NYSE: KR) shares have found strong support above the $30 level, but the price cant still surpasses the $35 resistance. This company’s fundamentals are excellent, and Kroger shares are still undervalued relative to the other retail companies.

Fundamental analysis: Kroger raised its FY 2020 outlook

Kroger is the United States’ largest supermarket by revenue and the second-largest general retailer behind Walmart. Kroger has more than 2,750 supermarkets and multi-department stores on markets in 35 states and the District of Columbia.

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The company reported Q3 results at the beginning of December; total revenue has increased by 6.3% Y/Y to $29.72B while Q3 GAAP EPS was $0.80 (beats by $0.16). Total revenue has increased below the expectations (missed by $310M), the main reason for this was the Covid-19 pandemic, but the company raised its FY2020 outlook.

“As a result of our continued strong performance, market share growth, and the expectation of sustained trends in food at home consumption for the remainder of our fiscal year, we are raising our full-year 2020 guidance. For the full year 2020, we expect total identical sales without fuel to be around 14% and adjusted EPS growth of 50% to 53%,” said Chairman and CEO Rodney McMullen.

Very important information for potential investors is the fact that Berkshire Hathaway has Kroger shares in its portfolio. The purchase prices were between $23.84 and $29.1, with an estimated average price of $26.57.

This is still below the stock’s current price, but investors should have in mind that this is a stable company with a good position on the market. The fundamentals of this company are excellent, EBITDA is above $6B, the company raised its full-year 2020 guidance, and the dividend remains safe.

This stock is still undervalued relative to the other retailers, and maybe now could be a good moment to invest in Kroger shares.

Technical analysis: Kroger shares have found strong support above the $30 level

Data source: tradingview.com

The critical support levels are $30 and $27.5; $33, $35, and $40 represent the resistance levels. If the price jumps above $33, it would be a signal to buy Kroger shares, but if the price falls below $30, it would be a strong “sell” signal, and the next target could be around $27.5.

If the price drops even more in the upcoming months, every price in a range from $20 – $25 could be a good opportunity to invest in Kroger shares.

Summary

Kroger reported Q3 results at the beginning of December, total revenue has increased below the expectations, but the company raised its FY 2020 outlook. This stock is still undervalued relative to the other retailers, and maybe now could be a good time to invest in Kroger shares.

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