The Kroger Co (KR, Financial) recently experienced a daily gain of 3.22%, yet over the last three months, it has seen a slight decline of 1.55%. With an Earnings Per Share (EPS) of $2.57, investors are keen to understand whether the stock is fairly valued. This article delves into an in-depth valuation analysis to uncover the true worth of The Kroger Co (KR) in the current market.
Company Introduction
The Kroger Co (KR, Financial) is a titan in the U.S. grocery market, with a vast network of supermarkets and a significant presence in both the pharmacy and fuel sectors. The company's commitment to quality is reflected in its robust private-label products, of which a significant portion is self-manufactured. As The Kroger Co stands on the brink of a potential $25 billion acquisition of Albertsons, which could reshape the industry landscape in 2024, the question of the company's valuation becomes increasingly pertinent. With a current stock price of $45.53 and a GF Value of $47.28, determining whether The Kroger Co is fairly valued requires a closer look at the underlying financials and market position.
Understanding GF Value
The GF Value is a unique metric that captures the intrinsic value of a stock. This measure takes into account historical trading multiples, an adjustment factor based on the company's past performance, and future business projections. When the stock price aligns with the GF Value Line, it is considered fairly valued. Conversely, a significant deviation above suggests overvaluation and potential underperformance, while a price below the GF Value Line may indicate undervaluation and the prospect of higher returns.
For The Kroger Co (KR, Financial), with a market cap of $32.80 billion, the stock appears to be trading close to its fair value. This assessment suggests that the long-term return of its stock is likely to mirror the rate of the company's business growth.
Financial Strength and Stability
Investing in companies with robust financial strength is crucial to avoid permanent capital loss. The Kroger Co's cash-to-debt ratio of 0.15, although lower than many of its peers, still secures a financial strength rank of 6 out of 10. This indicates a fair balance sheet, which is an essential aspect of the company's overall financial health.
Assessing Profitability and Growth
The profitability of a company is a key indicator of its investment potential. The Kroger Co has maintained profitability for the past decade, with a solid revenue of $147.80 billion and an EPS of $2.57. Although its operating margin is modest, the overall profitability rank of 9 out of 10 reflects a strong performance. Furthermore, The Kroger Co's average annual revenue growth of 10.3% positions it favorably within the Retail - Defensive industry.
Comparing ROIC and WACC
The comparison between a company's Return on Invested Capital (ROIC) and its Weighted Average Cost of Capital (WACC) is a critical measure of profitability. The Kroger Co's ROIC of 4.54 is currently below its WACC of 5.69, suggesting that it is not creating excess value over its capital costs in the short term.
Conclusive Insights
In conclusion, The Kroger Co (KR, Financial) is fairly valued at present, reflecting its fair financial condition and robust profitability. Its growth is commendable, outperforming more than half of its competitors in the Retail - Defensive industry. To gain a deeper understanding of The Kroger Co's financial journey, interested investors can explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
