Analyst Note
| Zain Akbari, CFA |Our $31.50 fair value estimate for narrow-moat Kroger should rise by a mid-single-digit percentage after the company announced strong second-quarter earnings fueled by Americans’ continued pandemic-related turn homeward. While top-line expansion tapered from first-quarter levels (14.6% identical sales growth, excluding fuel, versus 19.0%), Kroger now appears poised to beat our prior full-year 9% target, particularly with rising infection rates in the fall and winter likely to maintain or amplify current trends. Coupled with strong scale-driven profitability (roughly 70 basis points of adjusted operating profit expansion, or nearly 85 basis points year to date, against our 30-basis-point prior estimate), we anticipate lifting our fiscal 2020 adjusted EPS estimate of $2.78 toward management’s $3.20-$3.30 range.