With Rising Food Prices, Should You Add Kroger to Your Portfolio?

Trends in the U.S. food market are constantly evolving owing to changing consumer behavior and economic growth. U.S. Department of Agriculture reported that the Consumer Price Index (CPI) for all food increased by 0.2% from November 2024 to December 2024, where food prices were up 2.5% compared to December 2023.

Further, food-at-home CPI increased 0.1% from November 2024 to December 2024 and was 1.8% above December 2023, and food-away-from-home CPI surged 0.3% in December 2024 and was 3.6% higher than in December 2023. These trends will likely take a toll on consumers’ preferences and how they shop.

As per Statista, revenue in the U.S. food market is expected to be $864 billion in 2025, with confectionery & snacks being the largest segment with a market volume of $141.30 billion in 2025. The food market is projected to grow at a CAGR of 4.4% (2025-2030).

Amid the constantly rising food prices and changing market dynamics, The Kroger Co. (KR) is a grocery market contender, striving to provide high-quality food and products to its customers at reasonable prices. KR is one of the largest grocery retailers in the U.S., operating combination food and drug stores, multi-department stores, marketplace stores, and price impact warehouses.

The company’s engaging initiatives, like the recently announced savings blitz, offer easy meals for customers with high savings on Big Game. Another initiative is its Build the Perfect Bowl, which engages customers in creating their innovative meals through simple guides and templates. With such efforts, KR keeps its customers engaged, involved, and ahead with its new offerings.

Kroger’s financial performance has also been noteworthy in the recent periods. In the last reported quarter, the company’s digital sales rose by 11% year-over-year. Over the quarter, its brand sales growth exceeded total grocery sales growth.

KR’s stocks have also been on a growth rally driven by its strong performance. Shares of KR gained 22.6% over the past six months to close its last trading session at $65.28. Also, the stock exhibited an impressive growth of 42.4% over the past year.

Let’s look at factors that could influence KR’s performance in the upcoming months.

Solid Financials

For the third quarter that ended November 9, 2024, KR reported sales of $33.63 billion, and its adjusted FIFO operating profit was $1.02 billion for the same quarter. Furthermore, adjusted net earnings attributable to KR amounted to $719 million or $0.98 per common share, reflecting growth of 3% and 3.2% from the prior year’s quarter, respectively.

Also, the company’s total assets stood at $62.42 billion as of November 9, 2024, compared to $51.02 billion as of November 4, 2023.

Impressive Historical Growth

KR’s revenue grew at a CAGR of 3.4% over the past three years, while its EBITDA improved at a CAGR of 13.5%. Its EBIT increased at a CAGR of 22.6% over the same period, while the company’s net income and EPS grew at respective CAGRs of 39.8% and 41.8% over the same time frame.

In addition, the company’s tangible book value and total assets have grown at CAGRs of 19.5% and 7.8% over the same timeframe, respectively.

Favorable Analyst Estimates

Analysts expect KR’s revenue for the second quarter (ending July 2025) to come in at $33.97 billion, indicating a marginal increase year-over-year. The consensus EPS estimate of $1 for the same period reflects a 7% year-over-year improvement. Moreover, the company topped consensus EPS estimates in all of the trailing four quarters, which is promising.

For the fiscal year (ending January 2026), the company’s revenue and EPS are anticipated to grow 1% and 7.3% year-over-year to $149.27 billion and $4.78, respectively.

High Profitability

KR’s trailing-12-month Return on Common Equity of 22.77% is 107.5% higher than the 10.97% industry average. Its trailing-12-month Return on Total Capital of 8.24% is considerably higher than the industry average of 7.25%. Likewise, the stock’s trailing-12-month Return on Total Assets of 4.43% is 9.9% higher than the industry average of 4.03%.

Furthermore, the stock’s trailing-12-month Asset Turnover Ratio of 2.64x is significantly higher than the 0.88x industry average.

Low Valuation

In terms of forward non-GAAP P/E, KR is currently trading at 14.67x, 8.5% lower than the industry average of 16.02x. Likewise, the stock’s forward EV/Sales and Price/Sales of 0.43x and 0.32x are considerably lower than the industry averages of 1.58x and 1.19x, respectively.

Additionally, the stock’s forward EV/EBITDA and Price/Cash Flow of 8.15x and 7.48x are 18.4% and 43.6% lower than the industry averages of 9.99x and 13.26x, respectively.

POWR Ratings Reflect Promise

KR’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. KR has a B grade for Value and Quality, which is in sync with its discounted valuation and higher profitability relative to its peers.

KR is ranked #16 among the 35 stocks in the A-rated Grocery/Big Box Retailers industry.

Beyond what I have stated above, we have also given KR grades for Stability, Growth, Momentum, and Sentiment. Get access to all the KR ratings here.

Bottom Line

Kroger is a leading food retailer, offering a variety of food products and services. The company operates over 2,750 grocery retail stores under various brands. The company’s consistent efforts towards keeping up with the ongoing trends and strategic initiatives allow it to connect with customers better. Also, KR’s wide product offerings and sound financial reports solidify its prospects.

Given KR’s strong financial performance, accelerating profitability, strong market position, and robust growth outlook, it could be wise to invest in this stock.

How Does The Kroger Co. (KR) Stack Up Against Its Peers?

While KR has an overall POWR Rating of B, investors could also check out these other stocks within the A-rated Grocery/Big Box Retailers industry with A (Strong Buy) or B (Buy) ratings: Village Super Market, Inc. (VLGEA), Marks & Spencer Group Plc (MAKSY), and Dairy Farm International Holdings Limited (DFIHY).

For exploring more A and B-rated grocery stocks, click here.

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KR shares were trading at $64.94 per share on Tuesday afternoon, down $0.34 (-0.52%). Year-to-date, KR has gained 6.20%, versus a 3.01% rise in the benchmark S&P 500 index during the same period.

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.

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