$KR

Explicit claim • strong conviction • basis: multiple relative

Kroger, on the other hand, trading at $57.90, which again, this was just at 55 bucks about a week ago. $5.22 expected earnings, 11 PE. So, winner winner chicken dinner for Kroger here.

Explicit claim • strong conviction • basis: multiple relative

And the current blended PE is 11. ... And this is below the fair value ratio of what the market would generally pay for a company like this. ... So this is where you can find value. If you're investing with the core and satellite and you have individual stocks, there is value to be had out there. ... if you were to buy and hold Kroger from today's prices, well, you're looking at just under an 18% annualized total return from now until then, if they were to return to a premium valuation of around 13 and a half times.

Implied claim • strong conviction • basis: multiple relative

We're talking about the start of 2024, and before that at the end of 2019. But the problem we saw with Procter & Gamble applies to Kroger, which is that it has significantly less revenue growth. Forward estimates are just over 1%. Earnings can grow faster as we see from the outlook through efficiency and buybacks, but it still needs enough sound underlying retail activity. Its operating margin is about 3%. This means small changes in wages, distribution costs, promotions, or product mix can have tangible impacts on earnings. Cheap earnings are less reassuring when margins are this tight. It achieved its latest results with 5% adjusted earnings growth thanks to cost savings and improved e-commerce profitability. Management maintained its earnings guidance. This explains why the stock rallied after mixed earnings results. However, the problem is that the company lowered its guidance for same-store sales to between 0.2 and 0.8%. Changes in policies related to pharmacies explain some of this weakness, but management also pointed to the broader economic environment. So, an encouraging earnings result and a sales warning are linked. I can't describe this as a collapse in demand. Nor should it be assumed that grocery spending automatically shields Kroger from all consumer pressures or competition. Its financial leverage is good, and it's manageable but higher than P&G. Net debt is about two and a half times EBITDA. With razor-thin margins, I want operational improvements to support earnings rather than relying primarily on financial engineering. Wall Street sees about 15% implied upside from an average price of $68. Although some see it reaching $85. The low end is not too far from today's stock price level. And the methods used span a wide range. Graham estimates, which are around $58. While multiples valuation and the dividend discount model, both are high. The spread tells us the answer depends heavily on how we value future improvement. Comparing historical multiples is less dramatic than you might expect. 11 times versus a five-year average of 12.3. It's a discount, but it's not evidence that the market has suddenly given up on the company. It still implies growth. If Kroger meets all of that while maintaining its current multiple, the investment could succeed without a significant re-rating. This is the most sensible version of the bull case here. The real test is whether management can convert earnings guidance into actual cash flows.

Implied claim • moderate conviction • basis: drawdown discount

if we zoom out looking at the year-to- date performance, the share price is down about 8.2% going from a peak of about 74 almost $76 per share actually to where it's at now, $57.80. So, that's quite a steep drop. And if we look at the performance over the past year, it's down even more. It's actually down closer to 20%.