Kroger Remains Undaunted by Inflationary Strain; Shares Trade Fairly

Similar to the trading reaction, our $48 per share valuation of narrow-moat Kroger should rise by a mid-single-digit percentage after the firm announced second-quarter earnings that leave it trending ahead of our full-year targets. The results (including 5.8% identical sales growth, excluding fuel; period ended Aug. 13) were underpinned by its broad portfolio, including its strong private-label offerings, which we believe contribute to its competitive advantages. We still expect low-single-digit revenue growth and adjusted operating margins on average over the next decade, but with the shares trading near our valuation, we suggest investors seek a greater margin of safety before building a position.