If you’ve been to the grocery store during this pandemic mess we’re in, then you know what I’m saying is right: As much as the coronavirus shutdown is wrecking the economy and stock market right now, grocery stocks like Kroger (NYSE:KR) are the bright spots of your portfolio. In fact, Kroger stock is up nearly 6% over the past month.
Recently, many of the nation’s governors enacted executive orders to try to keep people at home. These orders also prevent from congregating in groups, shut down bars and restaurants and reinforced the importance of social isolation.
And while we don’t yet know if those efforts will be enough to contain the coronavirus from China — or even to flatten the curve of infections to keep medical systems from being overwhelmed — the threat prompted an absolute run on the nation’s grocery stores. From coast to coast, people stocked up on eggs, fresh meat, canned foods, fruits, vegetables and paper products.
That said, many grocery stores are continuing to have challenges in keeping supplies in stock. And that could be a prolonged issues, as there’s no estimate as to when the pandemic will be over; It could go on for weeks or months.
However, Cincinnati-based Kroger is a prime recipient of all that business. The company is the world’s largest grocery store chain with nearly 2,800 stores in the U.S. It operates in 35 U.S. states under a variety of different names, including City Market, Fred Meyer, Fry’s Food Stores, Harris Teeter, Pay Less and Ralphs. It also acquired the meal kit preparation company Home Chef in 2018.
Kroger Stock at a Glance
Stocks collapsed into a bear market in 2020, but Kroger stock is still going strong. KR stock is up 3% so far this year, while the Dow Jones Industrial Average is down more than 23%.
Earlier this month, Kroger reported fourth-quarter 2019 revenue of $28.89 billion, which slightly beat analysts’ estimates of $28.83 billion. Earnings were $0.57 per share, beating estimates of $0.56.
Moreover, Kroger CEO and chairman Rodney McMullen offered a bullish assessment:
“We are pleased with our 2019 results and improving trends in our supermarket business. We delivered on our commitments for ID sales without fuel, adjusted FIFO operating profit, and cost savings in addition to generating over $100 million of incremental operating profit through alternative profit streams in 2019.”
Additionally, Kroger issued 2020 guidance that includes EPS of $2.30 to $2.40. This is significantly better than the $2.19 forecast by analysts.
It’s also notable that Kroger’s bullish guidance doesn’t include the coronavirus impact. This period should yield strong sales and somewhat higher expenses due to bonuses, employee sick leave and workforce expansion by 10,000 employees.
Coronavirus and KR Stock
It’s too early to tell if social distancing and closing bars, restaurants and other non-essential businesses will be enough to flatten the curve of the coronavirus’ spread.
So far, health officials confirmed more than 700,000 cases around the world and more than 142,000 cases in the U.S., but that doesn’t take into account anyone who carrying the virus but not showing symptoms. More than 35,000 have died.
The longer this crisis continues, the longer that grocers like Kroger will be the scene of shopping frenzies that some compare to Black Friday.
The biggest risk to Kroger stock is a breakdown in the supply chain — something that McMullen says won’t happen. Kroger operates 37 of its own factories that are producing products.
“We asked President Trump and Vice President (Mike) Pence to let people know there’s plenty of food and plenty of things in the supply chain,” McMullen told The Cincinnati Enquirer. “And as long as customers just buy what they need and don’t hoard, there will be no problems at all – there’s plenty of food in the supply chain.”
Overall, KR stock gets a strong “A” rating in my Portfolio Grader system.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.