Kroger (KR): Revisiting Valuation After Earnings Beat and Raised Full-Year Guidance

If you have been keeping an eye on Kroger (KR) lately, there’s little chance you missed the excitement after its latest quarterly results. The company’s second quarter earnings not only came in ahead of expectations, but management also raised their full-year guidance for both identical sales and earnings per share. For investors weighing whether to hold, trim, or add to their position, a raised outlook—especially following an earnings beat—can feel like an open invitation to revisit the stock’s value and growth prospects. This bump in confidence arrives after a stretch of healthy momentum for Kroger. Over the past year, shares have gained 24%, building on steady growth throughout the year and reflecting a degree of optimism that is tough to ignore. The company’s restructuring efforts, accelerated share buybacks, and consistent cash flow have kept Kroger in the conversation, even as competitors navigate similar market pressures. Which brings us to the main question: as the market rallies around improved guidance, is Kroger offering investors an attractive entry point, or is the run-up already accounting for everything the future might hold?

Most Popular Narrative: 11.9% Undervalued

The most widely followed narrative suggests Kroger is undervalued, with its fair value estimated to be notably higher than the current trading price.

Kroger's continued focus on fresh and health-oriented offerings, including expansion of its Simple Truth and Private Selection lines (with 80 new protein products targeting current consumer trends), positions it to benefit from heightened consumer emphasis on health and premiumization. This supports larger basket sizes, higher gross margins, and improved earnings quality over time.

Curious what’s fueling this juicy upside? One key growth engine behind the numbers is hiding in plain sight—it is not just about bigger shopping carts or new stores. There is a quantitative edge behind this valuation that may surprise you. Want a hint at these bold assumptions? The specifics may just redefine how you view Kroger’s future financials.

Result: Fair Value of $75.73 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, persistent wage inflation or continued weakness in e-commerce profitability could put pressure on Kroger’s margins and challenge the bullish outlook presented by analysts.

Find out about the key risks to this Kroger narrative.

Another View: Discounted Cash Flow Model

A second valuation approach, our DCF model, uses a different method by estimating the company’s worth based on projected cash flows rather than market multiples. This method also indicates potential undervaluation, but questions remain about whether its long-term forecasts are reliable.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Kroger for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Kroger Narrative

If you have a different perspective or want to dig into the numbers on your own terms, you can easily craft your own view in just a few minutes with Do it your way.

A great starting point for your Kroger research is our analysis highlighting 5 key rewards and 3 important warning signs that could impact your investment decision.

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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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