Should I buy Kroger shares after Q3 results?

The Kroger Co. (NYSE: KR) shares continue to trade in a bull market after the company reported better than expected third-quarter results this month.

Kroger’s business continued to grow throughout the third fiscal quarter, and the company’s management raised financial guidance for the full fiscal year during the third-quarter earnings call.

Kroger raised its financial guidance

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Kroger is the United States’ largest supermarket by revenue and the second-largest general retailer behind Walmart.

Kroger reported strong third-quarter results this month; total revenue has increased by 7.3% Y/Y to $31.9 billion, $680 million above expectations, while the Non- GAAP earnings per share were $0.78 (beats by $0.11).

It is important to say that gross margin has decreased to 21.66% of sales for the third quarter, mainly due to higher supply chain costs together with higher inflation across several categories.

The company’s management raised financial guidance for the full fiscal year and announced that net sales are expected to increase by 13% compared with the prior year. CFO Gary Millerchip said that net earnings per diluted share for the full fiscal year should be in a range between $3.40 – $3.50.

The retail market benefited during the third quarter on positive consumer behavior trends while Kroger continues to support stronger inventory positioning and the ability to mitigate cost pressure vs. smaller peers amidst supply chain and labor disruption issues. Chairman and CEO Rodney McMullen added:

Across all aspects of our business, we are innovating and executing with speed against the key initiatives that are transforming our business. We are committed to delivering for our associates, customers, and communities, and we remain confident in our ability to deliver total shareholder returns of 8% to 11% over time.

For the first nine months of the 2021 year, Kroger has repurchased $1 billion of shares, of which $297 million were repurchased in the third quarter.

Kroger trades at less than six times TTM EBITDA, and with the market capitalization of $31.7 billion, shares of this company are reasonably valued.

Kroger’s net total debt to adjusted EBITDA ratio is 1.68, compared to 1.74 a year ago; the company continues to generate strong free cash flow and invest in the business to drive long-term sustainable net earnings growth.

Shares of this retailer could deliver strong shareholder value and attractive prospects in the longer term.

Bulls control the price action

Kroger shares have advanced more than 35% since the beginning of 2021, and according to technical analysis, the bulls remain in control of the price action. Rising above $50 supports the positive trend, and the next price target could be around $53.

If the price falls in the upcoming period, every price in a range from $35 to $40 could be a very good opportunity to invest in Kroger stock.

Summary

Kroger reported strong third-quarter results at the beginning of December, and the company’s management raised financial guidance for the full fiscal year. Kroger continues to generate strong free cash flow, and shares of this company could provide strong returns for long-term investors.

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