Jefferies Upgrades Kroger to 'Buy'

Investing.com — Jefferies has upgraded Kroger Company (NYSE:KR) to 'buy', citing growth potential for the grocery chain regardless of the pending merger with Albertsons Companies (NYSE:ACI).

The brokerage pointed to:
– Improving foot traffic trends
– Structural gains in Kroger’s fuel business profitability

These factors are seen as catalysts for forward momentum. Jefferies foresees earnings growth supported by a healthier balance sheet, even without the merger.

If the merger is completed, significant benefits are anticipated from Kroger’s ability to optimize Albertsons’ operations, creating synergies and cash flow that enable better competition against retail giants like Walmart (NYSE:WMT) and Amazon (NASDAQ:AMZN).

Conversely, should the merger fall through, Kroger could redirect approximately $6 billion of raised debt towards share buybacks, thereby increasing earnings per share.

Currently, Kroger’s stock trades at about 11.5 times its forward earnings estimate, lower than its 10-year historical average of 13 times, indicating potential for multiple expansion. Jefferies has set a price target of $73, reflecting 13.5 times its blended earnings estimate for 2027.

This upgrade occurs as Kroger faces competitive pressures while capitalizing on enhancements such as its more profitable fuel segment and a recovery in customer traffic.