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The Kroger Co. (KR): A 32% Potential Upside for This Grocery Retailer

The Kroger Co. (NYSE:KR) has advanced significantly since the beginning of the year, with stock prices going from around $26 per share to nearly $34 per share. In the company’s recent first quarter earnings announcement, it also reported a good growth in bottom line. Is Kroger a good choice for investors’ portfolios after this announcement? Let’s take a look.

Impressive first quarter earnings

The Kroger Co. (NYSE:KR)

In the first quarter 2013, The Kroger Co. (NYSE:KR) managed to grow both its revenue and net income. The revenue increased from more than $29 billion last year to $30 billion this year. Net income rose by more than 9.5% to $481 million. Interestingly, its earnings per share experienced a higher growth of more than 19%, from $0.78 per share to $0.93 per share. The higher growth in earnings per share was due to the share buyback activities during the past twelve months. The company reported that during the past four quarters, it has returned more than $1.3 billion to shareholders through both dividends and share buybacks.

Based on the positive momentum of the good first quarter results, The Kroger Co. (NYSE:KR) raised its 2013 earnings-per-share guidance from $2.71 to $2.79 per share to $2.73 to $2.80 per share. Including increasing dividends, its long-term growth rate guidance stayed in the range of 8% to 11%. David Dillon, the company’s chairman and CEO felt proud, saying that “The Kroger team’s relentless focus on delivering on our Customer 1st strategy, quarter after quarter, continues to set us apart. We will continue to build on this strong momentum to drive growth and greater shareholder value.”

The cheapest valued company with good profitability

The Kroger Co. (NYSE:KR) is currently trading at $34 per share, with the total market cap of $17.50 billion. The market values Kroger only at nearly 5.6 times its trailing EBITDA (Earnings before interest, taxes, depreciation and amortization). Compared to its much bigger peers including Target Corporation (NYSE:TGT) and Wal-Mart Stores, Inc. (NYSE:WMT), The Kroger Co. (NYSE:KR) is definitely quite cheap.

Target, at $68 per share, is worth around $43.8 billion on the market. The market values Target at 7.4 times its trailing EBITDA. Despite the higher earnings valuation, Target Corporation (NYSE:TGT)’s revenue and profit decreased in the first quarter 2013.Its revenue came in at $16.7 billion, a bit lower than $16.87 billion in revenue last year, but its earnings per share declined from $1.04 per share in the first quarter of 2012 to $0.77 per share this year. For the full year, the company estimated that it would generate around $4.12 to $4.32 in earnings per share.