Kroger Overbought and Overpriced

Alan Farley
Published: Sep 7, 2021, 14:12 UTC

The stock is consolidating near an all-time high but the setup favors a sell-the-news reaction after Friday’s report.


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The Kroger Co. (KR) reports fiscal Q1 2022 earnings in Friday’s pre-market, with analysts looking for a profit of $0.64 per-share on $30.7 billion in revenue. If met, earnings-per-share (EPS) will mark a 12% reduction in profit compared to the same quarter last year, when Americans overstocked their shelves with food and supplies due to the pandemic. The stock jumped more than 4% in June after beating Q4 2021 top and bottom-line estimates and is now trading near an all-time high.

Outperforming Larger Rivals in 2021

The grocery giant is outperforming Walmart Inc. (WMT) and Inc. (AMZN) by wide margins in 2021, despite the rapid growth of their supermarket services. The chain, which operates more than 3,000 locations under the Fry’s, King Sooper’s, City Market, and Ralph’s labels, has benefited from soaring foot traffic as unvaccinated folks visit their pharmacies. In addition, it has maintained profit margins despite food commodity inflation, strategically raising prices.

Many big investors own Kroger stock, including Warren Buffett, who raised his stake from 51.06 to 61.79 million shares during the quarter. Even so, earnings growth has decelerated since 2020, highlighted by a digital sales slowdown to an unimpressive 16% in the last quarter. Additional slowing could easily trigger a reversal and pullback, compounded by 24% upside since the last earnings report.

Wall Street and Technical Outlook

Wall Street is taking a cautious view, posting a consensus ‘Hold’ rating based upon 5 ‘Buy’, 1 ‘Overweight’, 15 ‘Hold’, and 3 ‘Underweight’ recommendations. In addition, four analysts recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $28 to a Street-high $48 while the stock is set to open Tuesday’s session less than $2 below the high target. Given slowing growth, this lofty placement favors new short sales, if the seller is willing to pay the current $0.21 per-share dividend.

Kroger spiked into the low 40s in a vertical impulse in January 2020 and gave up those gains during the pandemic decline. A slow but persistent recovery wave reached the prior high in August 2021, yielding an immediate breakout that posted an all-time high at 47.99 last week. The stock is consolidating near that level as the new trading week begins, with headwinds favoring a sell-the-news reaction after Friday’s report.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.

About the Author

Alan Farley is the best-selling author of ‘The Master Swing Trader’ and market professional since the 1990s, with expertise in balance sheets, technical analysis, price action (tape reading), and broker performance.

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