However, these things can be fixed. Kroger stock has all the Wal-Mart strategy in place. It already has, in some of its smaller units, the kind of cachet that attracted Whole Foods to Amazon. It already does meal kits and delivery. A single brand, as Federated Department Stores chose with Macy’s Inc.. (NYSE:M), would allow it efficiently buy national advertisements. It could use the second title for upscale units like Mariano’s in Chicago, as Macy’s did with Bloomingdales.
Kroger is just begging for a hedge fund to make a move on it and need change. After one arrives, the stock is likely to take off. In the meantime, you can pluck it in the bargain bin for a dividend that is well-backed by earnings. At the beginning of 2016, this was a $40-per-share stock. Its market cap is less than $18 billion, while its earnings last year were $115 billion. The main reason for this is fear of Amazon.Com Inc.. (NASDAQ: Amzn stock), which has sent all retailers off a cliff. That is an assumption that Amazon is going to swallow everything and everyone in retail, that in a few years no one is going to leave their house anymore. When folks ask if Kroger can survive, this is what they are talking about. Presently, Kroger stock is failing the 3 tests Matt McCall of MoneyWire looks for in a long-term buy. Its fundamentals seem feeble, the stock’s technicals are poor and it lacks the intangibles in that it’s reacting to market trends rather than driving them. The issue is no one understands this. Customers don’t know it. Investors don’t know it. It’s trying things, it’s just not committing to anything.
The company needs to push on merchandisers and marketers to the top of its executive positions. Sometimes, in justifying Kroger’s fall, this AMZN phobia is combined with a fear of Wal-Mart Stores Inc.. (NYSE: WMT), which has twice Kroger’s share of the grocery market and is currently the second-largest online merchant. Kroger is the country’s second-largest supermarket business, growing sales a few percentage points each year. It continues to out-earn its dividend, now 13 cents per share and a 2.5% yield. Debt levels remain stable at one-third of assets. It could do more than just experiment with delivery, as it has done with its King Sooper’s chain in Colorado, and meal kits, as it has done by buying Prep + Pared last month.
What has happened to Kroger, as with so many other retailers, is that its middle-class message has gone out of fashion. Investors either want low-end names like Dollar General Corp.. (NYSE: DG), now worth more than Kroger despite being one-fifth its size, or they want high-end titles like Costco Wholesale Corp.. (NASDAQ : COST), now worth over three times more despite being roughly the same size. Right now, Kroger is drifting. But there are easy solutions to this stock’s problems, and the business itself is not in nearly as much trouble as the stock price indicates.
The Bottom Line on Kroger Stock
The stock did fall hard after it reported a single down quarter, with net income of $303 million (33 cents per share) on revenue of $36.385 billion in the spring period. Its second quarter, ending in August, was in-line with the previous year, with earnings of $353 million, down only slightly from the $380 million of the previous year. But Kroger isn’t collapsing… yet. One of the great mysteries of the bull market is the fall of Kroger Co.