BofA Securities Downgrades Kroger (KR) to Underperform on Tough Comps and Profit Headwinds
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(Updated - February 23, 2021 6:45 AM EST)
BofA Securities analyst Robert Ohmes downgraded Kroger (NYSE: KR) from Neutral to Underperform with a price target of $28 (from $40).
The analyst comments "We downgrade KR from Neutral to Underperform given tough comparisons as well as profit headwinds (gas & Ocado). Our $28 PO assumes 10x our new F23E EPS of $2.75 (vs. prior $40 PO was 14x $2.82) as we believe valuation could be pressured by negative IDs in F22. F4Q21 IDs should see upside (vs. BofA 10%) given strong sales, inflation & profitability thru the end of Jan. (see Nielsen), but we expect IDs to inflect negatively starting early March, & esp. vs. peak stockpiling (3rd week of March, w/ supermarkets +96% y/y LY). We also see potential for more aggressive promos this year to pressure margins beyond our ests. as well as margin risk as KR laps unusually strong fuel profitability esp. given KR’s fuel exposure (12% of sales) is 2x ACI). Finally, BofA Global Proprietary Signals highlights that stimulus payments in the offing & the vaccination drive could trigger a substantial boost to services spending (incl. restaurants) that we believe could further pressure y/y spending at Food Retailers in ‘21."
Shares of Kroger closed at $33.59 yesterday.
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