Kroger (KR): Shares Poised For A Pause - Guggenheim
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Guggenheim analyst, John Heinbockel, reiterated his Buy rating on shares of Kroger (NYSE: KR) but expects his best idea to pause for the next 6 months.
KR remains the analyst's "Best Idea", with a $40 PT, as a 2017 reflation play. He believes that as 2% deflation transitions back to 1% inflation, comps should re-accelerate to 3-4%, driving a return to 10%- plus EPS growth and at least modest multiple expansion.
That said, shares are likely to pause for two reasons: 1) his inflation lead indicator, the Guggenheim Agricultural Commodity Index is running down 1.5% y/y which he believes indicates inflation is unlikely to materialize until next summer
2) the shares' recent 10% rally since 10/31 (vs. a 6% rise in the S&P) has corrected a significantly oversold situation. With 3Q EPS and 2016 guidance likely to be non-events this week, reflation investors will require patience.
No change to the price target of $40.
Shares of Kroger closed at $33.88 yesterday.
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