Barclays Thinks Kroger 'Keeps Getting Better And Better'

• Kroger Co (NYSE: KR) shares are up 24 percent year-to-date, and recorded a 5 percent just on December 3.
• Barclays’ Meredith Adler maintained an Equal-Weight rating on the company, while raising the price target from $38 to $40.
• The company beat 3Q EPS on the back of higher SSS, and the strength of its private label program and new business unit add to the advantages, Adler said.

Kroger reported its 3Q15 EPS at $0.43, ahead of the consensus and Barclays estimate of $0.39. The company’s Identical store sales, ex-fuel, climbed 5.4 percent, beating the consensus expectation of 4.6 percent and the Barclays estimate of 5.0 percent.

Kroger is able to meet or exceed customer expectations with its “deep consumer insights and strong merchandising organization,” analyst Meredith Adler commented. He added that the company has been able to gain market share among a wide range of customers, having hit the “right balance of quality products, selection, service, and price point.”

There is nothing that points towards a slowdown in this momentum will slow, rather much suggests that Kroger would be able to sustain it. As examples, Adler cited strength of the company’s private label program, particularly Simple Truth, as well as the possibility of the new 84.51 business unit leading to new customer insights and more integrated functioning.

In the longer-term, there is upside from “new initiatives such as "click and collect" and ecommerce, although both remain small today,” the Barclays report noted.

Adler added that the company’s fuel business is achieving all-time high levels of profitability. He said that while there are several positives and Kroger could to meet or exceed its long-term EPS growth algorithm, “this is already priced into the stock.”

The EPS estimates for 4Q15 and FY15 have been raised by $0.01 to $0.53 and by $0.06 to $2.04, respectively, to reflect the high end of the upwardly revised guidance.