Amidst the daily fluctuations of the stock market, The Kroger Co (KR, Financial) has recently shown a daily gain of 1.2% and a modest 3-month gain of 2.66%. With an Earnings Per Share (EPS) of $2.57, investors are keen to determine: is the stock fairly valued? The following analysis delves into the valuation of The Kroger Co to provide a clear answer to this question.
Company Introduction
The Kroger Co (KR, Financial), a leading U.S. grocer, operates 2,719 supermarkets under various banners nationwide. With a substantial portion of its stores featuring pharmacies and fuel sales, Kroger boasts a significant private-label offering and manufactures a considerable percentage of its own-brand products. As it stands, nearly all of Kroger's sales are generated within the United States. Currently, the company's stock price sits at $45.71, with a market cap of $32.90 billion, closely aligning with the GF Value of $47.35—an estimation of its fair value.
Summarize GF Value
The GF Value is a proprietary metric that represents the intrinsic value of a stock, incorporating historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides a visual guide to the stock's fair trading value. When a stock's price significantly exceeds the GF Value Line, it may be considered overvalued, and conversely, when it's below, it may indicate a potential for higher future returns.
With these considerations, The Kroger Co (KR, Financial) appears to be fairly valued, suggesting that the long-term return of its stock may closely track the company's business growth rate.
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Financial Strength
Before investing, assessing a company's financial strength is crucial to mitigate the risk of permanent loss. The Kroger Co's cash-to-debt ratio of 0.15 places it in a less favorable position than 73.11% of its industry peers. Nonetheless, with a financial strength rating of 6 out of 10, The Kroger Co maintains a fair financial standing.
Profitability and Growth
Investing in profitable companies, particularly those with consistent profitability over the long term, is generally less risky. The Kroger Co has maintained profitability for the past decade, with an operating margin of 1.86%, although it ranks lower than 65.26% of its industry counterparts. Despite this, its overall profitability score is an impressive 9 out of 10.
When it comes to growth, The Kroger Co's 3-year average annual revenue growth rate of 10.3% surpasses 69.47% of its industry competitors, and its EBITDA growth rate of 9.8% outperforms 53.1% of them, indicating a strong potential for value creation for its shareholders.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is an effective way to gauge profitability. The ROIC measures the effectiveness of cash flow generation relative to capital invested, while the WACC represents the average rate a company is expected to pay to finance its assets. For The Kroger Co, the ROIC is currently 4.54, which is unfortunately lower than its WACC of 5.68, suggesting challenges in creating shareholder value.
Conclusion
Overall, The Kroger Co (KR, Financial) stock seems to be fairly valued. The company's financial condition is fair, and its profitability is strong, with a growth ranking that is competitive within the Retail - Defensive industry. For a deeper understanding of The Kroger Co's financial health, investors are encouraged to examine its 30-Year Financials.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
