Is There Still Upside in Kroger After Recent Supermarket Consolidation Scrutiny?

• Wondering if Kroger is still a smart buy at today’s price, or if most of the upside has already been baked in? Here is a breakdown of what the numbers say about whether this supermarket heavyweight still offers value.
• Despite a solid long term track record, with the share price up 42.2% over 3 years and 125.1% over 5 years, near term returns have cooled, with the stock down 5.8% over the last week and 1.0% over the past month while still up 1.9% year to date and 6.1% over the past year.
• Recent moves have been shaped by ongoing integration of acquired banners, shifting consumer spending toward value focused grocers, and regulatory attention around major supermarket consolidation in the US. Together these factors have investors reassessing Kroger’s resilience, pricing power, and long term growth runway.
• Kroger currently scores a strong 6/6 valuation checks, suggesting it screens as undervalued across every metric used in this analysis. Next, we walk through those approaches to explain why, before finishing with a more nuanced way to think about what “fair value” really means for this stock.

Find out why Kroger's 6.1% return over the last year is lagging behind its peers.

Approach 1: Kroger Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, estimates what a company is worth by projecting the cash it can generate in the future and discounting those cash flows back to today’s value.

For Kroger, the latest twelve month Free Cash Flow is about $2.2 billion. Analysts and extrapolated estimates see this rising to roughly $3.5 billion over the next decade, with a noticeable step up in the medium term as efficiency gains and scale benefits flow through. Simply Wall St uses a 2 Stage Free Cash Flow to Equity model, combining analyst forecasts for the next few years with more conservative, gradually slowing growth assumptions thereafter.

When those future cash flows are discounted back, the model arrives at an intrinsic value of about $88.27 per share. That implies Kroger is trading at roughly a 28.5% discount to its estimated fair value, suggesting the current market price does not fully reflect its projected cash generation.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Kroger is undervalued by 28.5%. Track this in your watchlist or portfolio, or discover 912 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Kroger.

Approach 2: Kroger Price vs Earnings

For established, profitable companies like Kroger, the Price to Earnings, or PE, ratio is a straightforward way to gauge how much investors are willing to pay today for each dollar of current profits. In general, faster growth and lower perceived risk justify a higher PE, while slower growth or higher uncertainty usually call for a lower, more conservative multiple.

Kroger currently trades on a PE of about 15.46x, which sits below the broader Consumer Retailing industry average of roughly 20.70x and also under the peer group average of 21.13x. Simply Wall St goes a step further by estimating a Fair Ratio of 22.63x. This is the PE Kroger might reasonably trade on given its earnings growth profile, margins, risk characteristics, scale and industry positioning. This makes it a more tailored benchmark than a simple comparison to peers or the sector, which can be skewed by very fast or very slow growers and by companies with very different risk levels.

Comparing Kroger’s current 15.46x PE to the 22.63x Fair Ratio suggests the market is applying a meaningful discount to what its fundamentals might warrant.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1440 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Kroger Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple way to connect your view of Kroger’s future with the numbers behind its fair value. A Narrative is your story for the company, where you spell out how you think revenue, earnings and margins will evolve, and then link that story to a financial forecast and resulting fair value estimate. On Simply Wall St’s Community page, used by millions of investors, Narratives are an easy, guided tool that helps you turn qualitative views into quantitative assumptions, then compare that Fair Value to today’s Price to see if Kroger is a buy, hold or sell. These Narratives also update dynamically as new information like earnings, news or regulatory decisions comes in, so your thesis can evolve with the facts. For Kroger, for example, one Narrative might lean toward the higher end of analyst estimates and see potential value around 85 dollars, while a more cautious Narrative might anchor closer to 63 dollars, reflecting concerns about e commerce profitability and margin pressure.

Do you think there's more to the story for Kroger? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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