Here’s Why Kroger Shares Have Surged Nearly 13% As The Market Plunges

Topline: As the coronavirus continues to cause widespread business shutdowns and take a toll on the economy, one stock has weathered—and actually benefited from—the environment: supermarket giant Kroger, which has seen its sales surge amid higher demand.

• Despite the market recently closing out its worst quarter since 1987—the S&P 500 is down nearly 23% for the year—Kroger’s stock has been one of the few that have made gains in 2020, despite the ongoing coronavirus pandemic.
• The stock, which currently trades at $32 per share, has soared 12.7% so far this year as the rest of the market tumbles.
• “Grocery stores seem to be getting a disproportionate boost from increased food-at-home consumption,” according to JPMorgan analyst Ken Goldman.
• “Although we knew the company was poised to benefit from consumers stocking up, the impact has been far greater than we expected,” writes Guggenheim Securities analyst John Heinbockel.
• “The strong demand across stores and digital peaked in mid-March as consumers stocked up,” according to Joseph Feldman, senior managing director and retail analyst for Telsey Advisory Group.
• Same-store supermarket sales have jumped 30% in March, the company said in a recent press release, which caused Kroger to upgrade its outlook for first quarter earnings.

Big number: While Kroger beat earnings estimates last quarter, posting $28.9 billion in revenue, sales are now expected to rise to $39.4 billion for the coming quarter, according to Bloomberg. Such a large increase would likely mean that Kroger’s share price continues to rise, analysts forecast.

Crucial statistics: Wall Street analysts are quite bullish on the stock: 22 of them give it either a “buy” or “hold” rating, while just one gives it a “sell” rating, according to Bloomberg data. Firms like Guggenheim and Telsey Advisory Group see the stock rising to $37 per share and $39 per share, respectively, while other firms like JPMorgan put the price target at current levels of around $32 per share.

Crucial quote: “We are seeing strong sales and are at the same time investing in our business to support our customers and associates through the current uncertainty,” Gary Millerchip, Kroger’s chief financial officer, said in the company’s latest press release.

Tangent: “We are encouraged to see Kroger managing its business well in this challenging time,” Telsey Advisory Group’s Feldman wrote in a recent note. He expects the supermarket chain to “continue benefiting from the surge in demand related to COVID-19 and increase in food-at-home consumption.” Furthermore, he says Kroger’s “effort to support associates and help customers should boost loyalty and drive repeat visits in the near-future.” 

What to watch for: While a surge in grocery sales is undoubtedly a big plus for the company, JPMorgan’s Ken Goldman remains neutral on Kroger. He highlights that on the less positive side, the company’s pharmacy business faces “ongoing headwinds from reimbursement rates,” not to mention “competition throughout food retail remains intense.”