Kroger Co (KR) — This supermarket operator has over 2,600 stores in 34 states, which include the acquisition of Harris Teeter Supermarkets stores in January 2014. It also operates convenience stores, fuel centers and food processing plants.
S&P Capital IQ Equity Research, which rates KR stock a “strong buy” with a 12-month price target of $47, expects EBITDA margins to expand to 5.1% in the fiscal year ending in January 2016, up from 4.8%.
Its analysts note volume growth and increased store traffic is likely to result from competitive pricing strategies and well-managed promotions. Stronger purchasing power and reduced pension costs, as well as an improved sales mix, higher-margin generic drugs sales and cost reductions in labor and transportation, should also add to the bottom line.
Capital IQ forecasts fiscal 2016 earnings will increase 12% to $1.97 per share, following a 1.1% reduction in shares outstanding resulting from an active share repurchase program.
After breaking from about $16 in 2013 and running to the mid-$30s early this year, KR stock has spent the past eight months consolidating. During the consolidation, a triple-top formed at $38.50.
Support is at the conjunction of the 50-day and 200-day moving averages. The 50-day (at $36.76) is a mere fraction from crossing through the 200-day (at $36.80) and triggering a golden cross, a long-term buy signal. My proprietary internal indicator, the Collins-Bollinger Reversal (CBR), has flashed a buy signal in anticipation of the crossover.
There are buyers on balance and MACD is turning up — positive technical indicators that signal a breakout through the triple-top is about to occur.
Buy KR stock under $38 for a trade to $44 in four months for a potential return of 16%.
