Investing.com -- Jefferies has upgraded Kroger Company (NYSE:KR) to "buy," as it views the grocery chain’s valuation would grow regardless of whether its pending merger with Albertsons Companies (NYSE:ACI) goes through.
The brokerage highlighted improving foot traffic trends and structural gains in Kroger’s fuel business profitability as catalysts for upward momentum. Jefferies sees potential for earnings growth supported by a healthier balance sheet, even without a deal.
If the merger is completed, Jefferies estimates significant benefits from Kroger's ability to optimize Albertsons’ operations, with synergies and cash flow to better compete with retail giants such as Walmart (NYSE:WMT) and Amazon (NASDAQ:AMZN).
However, in the event the merger falls through, Kroger could repurpose the roughly $6 billion of raised debt for share buybacks, driving earnings per share higher.
Kroger’s stock trades at about 11.5 times its forward earnings estimate, compared to its 10-year historical average of 13 times, presenting an opportunity for multiple expansion, Jefferies said. The brokerage set a price target of $73, reflecting 13.5 times its blended earnings estimate for 2027.
This upgrade comes as Kroger navigates competitive pressures in the grocery space while leveraging tailwinds like a more profitable fuel segment and a recovery in customer traffic.