Sunday 22 November 2015

Analysis of Kroger

Kroger, an American grocery conglomerate

Company: Kroger

ISIN US5010441013 | WKN 851544

Business: An American grocery conglomerate. They are standing on several pillars: Supermarkets (2625 of them), Convenience stores (to the quantity of 782), Fine Jewellery Stores (326 of them), Supermarket Fuel Centers (1330 so almost every second Supermarket have a fuel center). Additionally they have 37 Food Processing Plants and 36 Distribution Centers. When the customer arrived they definitely try to sell everything they can to them!

Active: USA in 34 states.

P/E: 21.5

This company was analysed due to a request posted on the Analysis Requests page.

contrarian values of P/E, P/B, ROE as well as dividend for Kroger

Comment: First of all... I find it disturbing that there are American companies making 110 billion USD in revenue and I have never even heard of them! I simply forget that the American domestic market is so large that without problems there are these kind of "giants" without even being forced of leaving the country. It was the same feeling when I bumped into TJX (analysis of TJX)

The P/E is too high for me with 21.5 and the P/B is also too high with 6.9 giving a clear no go from Graham. The earnings to sales I find very low with only 2% (Wal Mart had 3% last time I looked at them) but the ROE is excellent with 31.9% (but it is doped with extreme share buybacks that are kept in the books). The book to debt ratio is also very low with 0.2.
in the last five years they have shown an excellent yearly revenue growth of 5.7% which then also gives us a motivated P/E of 16 to 20 which to me means that Kroger is fairly valued today.
They pay a silly dividend in the size of 0.9% which on the other hand correspond to less than 20% of their earnings but still... 0.9% too little for my liking.

Conclusion: Graham says directly no to Kroger and so do I. They are today fairly valued on the market but for me the P/E, P/B are too high and the dividend too low for me to be interested in stepping in. If I would like to have an American grocery giant then I would most likely go for Wal Mart (analysis of Walmart 2015) at this moment since they have dropped down nicely and well... it would be the contrarian one to buy of these two options.

If this analysis is outdated then you can request a new one.

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