Why Analysts Favor a ‘Hold’ for Kroger ahead of Q3 Results

Wall Street’s views on Kroger

Of the 26 analysts that cover Kroger (KR), 38.5% favor a “buy” rating as of November 30, while 53.8% have given it a “hold” ratings and 7.7% have given it “sell” ratings. On average, analysts have set a 12-month price target of $30.96, which represents an upside potential of 4.4% from its price of $29.66.

Why Analysts Favor a ‘Hold’ for Kroger ahead of Q3 Results

After Kroger outlined its Restock Kroger growth model for 2018 at its investors’ conference on October 29, UBS, Guggenheim, J.P. Morgan, Jefferies, and Telsey Advisory Group have raised their price targets on the stock. UBS raised its price target from $29 to $31, Guggenheim has raised it from $31 to $34, J.P. Morgan has raised it from $28 to $30, and Jefferies raised it from $33 to $35.

However, earlier on October 23, Deutsche Bank downgraded the stock from “hold” to “sell.” Also, Credit Suisse lowered its price target from $33 to $32 on September 14, and Oppenheimer cut its price target from $32 to $31 on September 13.

Peer comparison

Of the 26 analysts who follow Target (TGT), 34.6% favor a “buy,” 61.5% favor a “hold,” and 3.8% favor a “sell” rating. On average, analysts gave the stock a price target of $84.19, which represents an upside potential of 18.7% from its previous target of $70.96.

Of the 34 analysts who follow Walmart (WMT), 43.8% recommend a “buy,” and 56.3% recommend a “hold.” On average, analysts have a price target of $107.0, which represents an upside potential of 9.6% from its current stock price of $97.65.

Valuation multiple

The decline in Kroger’s stock price has also lowered its valuation multiple. As of November 23, Kroger was trading at a forward PE multiple of 13.3x compared to 14.4x before the announcement of its second-quarter earnings on September 13. In comparison, peers Target and Walmart were trading at forward PE multiples of 12.7x and 20.6x, respectively.