Analyst Kelly Bania of BMO Capital maintained a Hold rating on Kroger Company, retaining the price target of $70.00.
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Kelly Bania has given his Hold rating due to a combination of factors impacting Kroger’s strategic decisions and market positioning. Kroger’s announcement to close three of its Ocado centralized fulfillment centers (CFCs) is a significant move in its strategic review of its e-commerce business. While this decision is expected to provide a substantial benefit to operating profit, much of this gain is anticipated to be reinvested in pricing and store conditions, reflecting a cautious approach given the current consumer focus on value.
Moreover, the closures indicate that the CFCs were underperforming, operating at only 30-50% of their intended capacity. Despite the closures, Kroger plans to continue monitoring the performance of its remaining CFCs, which are also considered at risk of closure. The shift in strategy includes leveraging partnerships with Instacart, DoorDash, and Uber Eats to potentially boost digital sales. However, for Kroger to achieve further valuation expansion beyond its current levels, it would need to demonstrate stronger market-share trends in the grocery sector. This cautious outlook contributes to maintaining a Hold rating with a target price of $70.
In another report released today, Barclays also maintained a Hold rating on the stock with a $75.00 price target.
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