We've been asking ourselves recently if the market has placed a fair valuation on Kroger Company. Let's dive into some of the fundamental values of this large-cap Consumer Staples company to determine if there might be an opportunity here for value-minded investors.
A Lower P/B Ratio Than Its Sector Average but Trades Above Its Graham Number:
The Kroger Co. operates as a food and drug retailer in the United States. The company belongs to the Consumer Staples sector, which has an average price to earnings (P/E) ratio of 24.36 and an average price to book (P/B) ratio of 4.29. In contrast, Kroger Company has a trailing 12 month P/E ratio of 13.3 and a P/B ratio of 3.05.
Kroger Company's PEG ratio is 1.27, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
Growing Revenues With a Flat Capital Expenditure Trend:
| 2020-01-31 | 2021-01-31 | 2022-01-31 | 2023-01-31 | |
|---|---|---|---|---|
| Revenue (MM) | $122,286 | $132,498 | $137,888 | $148,258 |
| Gross Margins | 22.1% | 23.3% | 22.0% | 21.4% |
| Operating Margins | 1.8% | 2.1% | 2.5% | 2.8% |
| Net Margins | 1.36% | 1.95% | 1.2% | 1.51% |
| Net Income (MM) | $1,659 | $2,585 | $1,655 | $2,244 |
| Net Interest Expense (MM) | -603 | -544 | -571 | -535 |
| Net Interest Expense (MM) | -$603 | -$544 | -$571 | -$535 |
| Depreciation & Amort. (MM) | -$3,289 | -$3,373 | -$3,429 | -$3,579 |
| Earnings Per Share | $2.04 | $3.27 | $2.17 | $3.48 |
| EPS Growth | n/a | 60.29% | -33.64% | 60.37% |
| Diluted Shares (MM) | 805 | 781 | 754 | 718 |
| Free Cash Flow (MM) | $1,536 | $3,950 | $3,576 | $1,233 |
| Capital Expenditures (MM) | -$3,128 | -$2,865 | -$2,614 | -$3,078 |
| Net Current Assets (MM) | -$25,715 | -$26,609 | -$27,483 | -$26,939 |
| Current Ratio | 0.77 | 0.81 | 0.75 | 0.76 |
| Long Term Debt (MM) | $12,136 | $12,502 | $12,809 | $12,571 |
| Net Debt / EBITDA | 2.37 | 1.7 | 2.02 | 1.88 |
Kroger Company has growing revenues and a flat capital expenditure trend, wider gross margins than its peer group, and average operating margins with a positive growth rate. The company also benefits from a strong EPS growth trend, generally positive cash flows, and healthy leverage.
