Kroger upgraded at Wells Fargo as industry headwinds near a bottom

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Kroger upgraded at Wells Fargo as industry headwinds near a bottom
Credit: © Reuters.

Kroger (NYSE: KR ) was lifted to Equal Weight from Underweight at Wells Fargo on Tuesday, assigning the stock a new price target of $50 from $422 per share.

Analysts at the firm said the risk/reward is more balanced, with industry headwinds near a bottom and ACI coming to a head.

"Food retail has been plagued by weakening pricing and poor unit volumes. Recent CPI/PPI results and commentary from WMT suggest deflation risk is easing," wrote analysts at Wells Fargo. "KR's relative performance tends to bottom ahead of CPI. We also expect unit volumes in food retail to improve as the price elasticity headwind diminishes and March 2023 SNAP cuts lap."

While the bank believes KR's top line probably won't impress in 2024, they at least see key concerns easing at the margin.

Meanwhile, the firm believes the ACI Resolution is probably positive, regardless of the outcome.

"KR's proposed acquisition of ACI looks to be headed to court. While the outcome remains uncertain, we see the resolution as positive either way," analysts stated. "If the deal is rejected, KR may likely launch an aggressive share repo with up to $8B in est. purchasing power; we est. each $1B repo adds 1-2% to EPS. If the deal closes, merger math would likely trump any fundamental concerns initially, as KR has pitched double-digit accretion by year 4."

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