It should come as no surprise that the grocery store industry is getting more and more competitive. Analysts at Kroger Co, however, are concerned not about growing competition; instead, the industry leader argues that it will help them to grow.
What Kroger is worried about, though, is something known as “same-store sales.” This is a metric that the company has always had trouble improving, though they consistently beat earnings, year after year.
The competition that Kroger refers to, of course, the introduction and expansion of chains like Lidl and Aldi, the latter of which has already announced plans to invest $5 billion to open and/or remodel a total of nearly 900 stores in the United States over the next few years.
According to RBC Capital Markets analysts, “Kroger’s current trading multiples are nearing levels seen when Walmart was making its big push into U.S. grocery – a far bigger impact than Amazon/Aldi/Lidl have on the industry today,” in a note on Tuesday.
Now, that is not to say that the industry analysis firm thinks Kroger will struggle, necessarily. Actually, RBC thinks that things will start to improve for Kroger, even in the face of some investor anxiety.
The note goes on to say, “We believe the fears surrounding Kroger are overstated. With easing deflationary pressure and structural advantages, we believe we are on the precipice of improving results.”
As such, RBC has given Kroger shares an outperform rating with a price target of $37.
At the end of the day, Macquarie Research analysts have also published, in a note: “Risks still exist to earnings, in our view, and include sustained weak identical-store sales growth that is well below historical leverage points and the prospect it will persist for much longer than expected.”
The note continues: “Further, we believe concerns about an evolving marketplace and intensifying competitive environment from both the internet, hard discounters and incumbent retailers’ reaction to both will constrain valuations and suggest risk to earnings if not lower potential growth,” with the company giving Kroger an underperform rating with a price target of $27.