It’s time to go shopping with The Kroger Company (KR).
This Zacks #2 Rank (Buy) grocery store giant recently delivered its third consecutive positive earnings surprise and raised its profit guidance for fiscal 2012, prompting analysts to revise their estimates higher. On top of the favorable earnings trend, Kroger offers investors a growing dividend – currently yielding a solid 2.0% – and reasonable valuation.
Amid uncertainty in the financial markets and interest rates close to all-time lows, this well-known household name looks like a solid pick for investors seeking both growth and income.
Strong Start to 2012 & Guiding Higher
Kroger reported fiscal first quarter (ended May 19) earnings per share of 78 cents on June 14, beating the Zacks Consensus Estimate by 8% and the year-ago earnings by 11%.
The results were driven by a 4.2% gain in same-store sales – a key indicator of a retailer’s health – representing the 34th straight quarter with an increase. Its continued emphasis on a customer-centric business model also helped. Share repurchase activities provided further cushion to the bottom line, which grew ahead of Kroger’s long-term goal of 6% to 8% growth.
In addition to delivering a high single-digit earnings surprise, Kroger raised its full year earnings guidance. The company expects earnings per share for fiscal 2012 between $2.33 and $2.40, up from the previous guidance of $2.28 to $2.38.
Shareholder Friendly Capital Deployment
Kroger pays a dividend that yields a healthy 2.0%. The nation’s biggest supermarket chain has raised its dividend every year since it began paying in 2006.
In fiscal 2011, Kroger spent a whopping $1.5 billion in buying back 66.5 million shares of its stock. The company has been continuing the share buyback activity in 2012 as well and already spent $345.3 million for repurchasing 14.6 million shares during the fiscal first quarter. Importantly, Kroger recently announced a new $1 billion share repurchase plan to replace the prior authorization that expired on June 12, 2012.
Estimates Move Higher
Based on Kroger’s ability to increase sales and market share, the full year Zacks Consensus Estimate for fiscal 2012 is up 6 cents (or 3%) to $2.38 over the last 30 days. Next fiscal year’s average forecast is up 3 cents (or 1%) to $2.52. Given the $1.96 per share earned in fiscal 2011, the projected growth rate stands at 21% for fiscal 2012. If the company hits the estimate in fiscal 2013, the annual growth rate will be 6%.
Reasonable Valuation
Shares of Kroger are going for about 9.6 times forward estimates, on par with the peer group average. Though the price-to-book ratio of 3.1 is significantly above the average of 1.8 offered by similar companies, Kroger’s trailing 12-month return on equity (ROE) of 25.8% is much better than its peer group average of 18.1%.
Chart Shows Estimate Growth
Below one can see the long-term earnings trend for Kroger. Analysts are increasingly bullish on the company, which is reflecting in their earnings estimates. In particular, with the price and consensus chart demonstrating incrementally increasing consensus estimates for fiscal 2012 and 2013, shares could keep climbing higher.
Cincinnati, Ohio-based The Kroger Company is one of the largest grocery retailers in the U.S., operating 2,425 supermarkets and multi-department stores in 31 states under approximately 24 local banners. In addition, Kroger runs 789 convenience stores, 337 fine jewelry stores, 1,109 supermarket fuel centers, and 38 food-processing plants.
This Week’s Growth & Income Zacks Rank Buy Stocks
Shares of Digital Realty Trust Inc. (DLR) have been on a long-term uptrend since late 2011 on account of strengthening fundamentals for commercial real estate and an improving outlook for the U.S. economy. Six earnings surprises in the past seven quarters and a fairly impressive dividend yield of 3.8% make this datacenter and digital storage REIT (real estate investment trust) a solid pick for investors seeking both growth and income. Read the full article.
American Depository Shares (ADSs) for Grupo Aeroportuario del Centro Norte SAB de CV (OMAB) have gained nearly 36% year-to-date, thanks in large part to the gradual recovery of the Mexican air transport industry, management’s initiatives to improve the passenger experience, revenue diversification and a favorable exchange rate. Moreover, this Mexican airport operator currently enjoys a handsome dividend yield of 3.75%. Read the full article.
NV Energy Inc. (NVE) has been bucking the weak macro backdrop and moving higher since the end of April, capitalizing on the resilience of its regulated business. This Zacks #2 Rank (Buy) got a further boost with the announcement of a 31% dividend hike and strong first quarter profit. Moreover, this defensive utility stock currently enjoys a healthy dividend yield of 3.9% and is expected to deliver earnings growth of 61.7% in the current fiscal year. Read the full article.
American Eagle Outfitters Inc. (AEO) has gained nearly 58.0% since mid-January, thanks to the company’s focus on improving the direct-to-customer experience, technological advancements such as the e-commerce business, international expansion and its strategy of shutting down underperforming stores. Moreover, this fashion retailer currently enjoys a healthy dividend yield of 2.1%. Read the full article.
