Because of their low volatility and consistent performance, consumer staple businesses could be a safe haven for investors during uncertain times.
One such business that deserves a closer look is Kroger (NYSE:KR). This retailer runs warehouses, marketplace stores, multi-department stores, and combination food and drug stores.
Natural food and organic sections, pharmacies, general merchandise, pet centers, fresh seafood, and organic produce are all available in its food and drug combination stores.
The company’s multi-department stores offer clothing, home fashion and furnishings, outdoor living, electronics, automotive products, toys, and other items.
What do the Fundamentals Say About Kroger?
Over the past ten years, the company’s revenues have climbed by more than 50%. There is a 4% compound annual growth rate.
Kroger (NYSE:KR) develops as it adds new locations and broadens its digital offerings.
Although the growth rate is not very high, it is consistent, which is why it could be a good choice for investors during an economic downturn.
During the previous ten years, Kroger’s EPS (profits per share) climbed significantly more quickly. In the past ten years, the EPS has climbed by more than 400%.
Sales growth, aggressive share repurchases, and improved margins were used to boost EPS. Using private branding and cutting expenses also boosts margins.
The majority of analysts now anticipate Kroger’s EPS to continue increasing at a medium-term annual pace of 3%.
What About Dividends?
Around 15 years ago, Kroger (NYSE:KR) started the payout, and every year since then, it has increased. Following the most recent 24 percent dividend increase, the corporation is now paying a 2.25 percent dividend.
Less than 30% of the company’s earnings are distributed as dividends. As a result, it is doubtful that the dividend will be reduced. Given that the corporation prioritizes returning capital to shareholders, investors should anticipate further increases.
In addition to paying out dividends, Kroger also uses buybacks to give money back to investors.
Kroger (NYSE:KR) has repurchased about one-third of its stock over the past ten years, increasing EPS by close to 50%. In situations where shares are trading for a low valuation, buybacks can be very effective.
Kroger Appears to be Reasonably Valued
When the anticipated EPS for 2022 is taken into consideration, the company’s P/E ratio stands at 11.83. When compared to the P/E from a few months ago, when the ratio peaked at 15, it is much lower. The ratio as of right now is similar to the average ratio from last year. Consequently, most analysts think the company is reasonably valued given its development.
This is a Reliable Business That is Expanding Gradually
Growth in both the top and bottom lines, rising dividends, and buybacks all benefit the company.
Investors can receive an investment that combines strong fundamentals and a reasonable price because the company is trading for what appears to be a fair valuation.
Plus, the company has opportunities in its pipeline.
The first opportunity is margin expansion. The difficulty for retailers is to increase their razor-thin margins. By promoting more of its private label products, Kroger hopes to improve the product mix. It also intends to keep operating as lean as possible and continue to reduce costs. Finally, it is utilizing its database by using the information about its clients to assist partners in direct marketing to them.
Another opportunity for potential expansion is the soundness of the balance sheet. Over the past five years, the corporation has reduced its balance sheet’s level of debt. This balance sheet can now accommodate M&A-based future growth. In locations where it is less or completely absent, it can acquire competitors. This plan could hasten top and bottom line growth and shorten the route to expansion.
One more area of opportunity is the company’s digital offerings. To draw in more customers, Kroger is expanding its online operation. Additionally, it will make it simpler for the business to enter new markets and provide a better experience, both of which will enable bigger margins.
The bottom line is Kroger (NYSE:KR) is a company that has demonstrated consistent growth and that has a number of opportunities for controlled expansion so it may deserve additional study by investors looking for consistency in these volatile times.
Featured Image: Megapixl @Jetcityimage
