Goldman Sachs Maintains Neutral on Kroger (KR) Following Vitacost Acquisition

Goldman Sachs maintained a Neutral rating on Kroger (NYSE: KR) with a price target of $52. Earlier The Kroger Co. and Vitacost.com, Inc. (Nasdaq: VITC), announced the successful completion of Kroger's tender offer to purchase all outstanding shares of common stock of Vitacost.com for $8.00 per share in cash.

Analyst Stephen Grambling said, "As a reminder, the deal price of $280mn implied a 0.7X EV/Sales multiple. At the time of the deal KR reiterated FY14 EPS guidance of $3.19 $3.27 vs. our estimate of $3.31 and expects to return to a 2.0-2.2X net debt/EBITDA ratio by mid-2015. Our estimates are unchanged as a result of the close given the merger is immaterial to KR’s consolidated operating results near term (0.4% of FY13 sales and -0.2% of FY13 EBITDA). We continue to believe the deal provides KR with a testing bed in direct distribution, adds talent to its digital staff, and complements its expanded natural and organic offering, all critical in positioning the company to benefit from secular shifts in the industry."

"Despite estimates above consensus and guidance, we remain Neutral rated with only 4% upside to our $52, 12-month price target based on a mid-cycle multiple of 6.6X pension adj. EV/EBITDA. Upside risks include better SSS from share gains/macro, consolidation, or better flow-through. Downside risks include gross margin pressure from a more competitive environment, more muted inflation and weaker trends in Rx," he added.

For an analyst ratings summary and ratings history on Kroger click here. For more ratings news on Kroger click here.

Shares of Kroger closed at $50.17 yesterday.

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