The Kroger Co. (NYSE:KR) is in a defensive sector since consumers keep purchasing groceries even when their household budgets are strained. The company’s extensive network of stores, its private-label brands, its pharmacy services, and the growth of its digital operations all contribute to its competitive stance, helping make it one of the best blue-chip stocks that hedge funds are buying.
However, the fact that comparable-sales growth is slowing does lead to doubts regarding the amount of earnings growth that investors can look for.
In the second quarter of 2026, Kroger’s sales reached $34.62 billion, an increase from $33.94 billion the previous year. Its net earnings rose to $641 million from $609 million, and adjusted earnings per share increased to $1.09 from $1.04. Digital sales also improved, with adjusted e-commerce sales up 20%. The problem is maintaining sales momentum since identical sales rose by only 0.2%, as compared with 3.4% the previous year. The company has since reduced its full-year comparable-sales growth forecast to a range of 0.2% to 0.8%, while keeping its adjusted earnings-per-share guidance at $5.10 to $5.30. Although cost controls and better digital profitability could help earnings, weak underlying sales growth is still a risk.
See where KR ranks in our 11 Best Consumer Staples Stocks to Invest In list.
Kroger Offers Value and Dividend Income
Kroger has a forward P/E ratio of 11.32, which means that the forward earnings yield is about 8.8%. An 8.8% earnings yield provides a good basis from which to assess Kroger’s valuation since it shows the level of earnings that investors receive in relation to the share price, even though it is not equivalent to a cash return or dividend yield. Against the background of Treasury yields, this earnings yield represents a potentially significant premium for assuming equity risk; however, investors will still have to take into account the uncertainty surrounding earnings growth, the issue of competition, and the possibility that margins could decline. Beyond individual value investors, Kroger has also attracted attention as a value investment in Warren Buffett’s portfolio, adding to its appeal for investors assessing its long-term potential. Check other value stocks in Buffett’s portfolio.
The fact that the forward multiple indicates that the market is not giving Kroger a high growth valuation raises the question of whether the expected earnings will be able to maintain themselves as comparable-sales growth decelerates. Although management’s unchanged earnings forecast offers some encouragement, the relatively low multiple should not be taken to mean that the stock is definitely undervalued.
The company also provides shareholders with another means of receiving returns in the form of a dividend. In 2026, Kroger increased its annual dividend from $1.40 to $1.56 per share, which makes it the 20th year in a row that the company has raised its dividend. When the share price is about $61.64, the annual dividend works out at a yield of about 2.5%.
A forward earnings yield of 8.8% together with a dividend yield of around 2.5% could attract value investors who are looking for both earning potential and a steady income stream. The main issue, however, is whether or not Kroger will be able to maintain earnings growth as the momentum from comparable-sales declines. Although the company has confirmed its earnings forecast, this offers only limited assurance, since the relatively low price multiple does not mean that the share is undervalued. Although Kroger trades at a relatively low multiple, two other stocks rank higher on our list of cheap dividend stocks. Find out which ones here.
What Investors Should Watch Before Buying Kroger
The historical P/E of Kroger should be viewed alongside its current forward P/E rather than in isolation. Grocery retailers generally have more modest valuations than fast-growing companies because their margins are thin and expansion opportunities are limited. A historical comparison is most useful when it takes into account changes in earnings expectations and in operating conditions. This also provides a useful point of comparison with Procter & Gamble, another consumer defensive stock that trades at a higher multiple than KR. Read its valuation analysis here.
The latest figures from Kroger paint a somewhat contradictory picture: earnings are rising, its digital activities are becoming better, and the company is keeping its profit forecast. However, the lower figure for comparable sales shows the extent to which that progress is limited. Although the share might attract investors who are looking for value, a continuous rise in sales would make the valuation argument more convincing.
While we acknowledge the risk and potential of KR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than KR and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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This article is originally published at Insider Monkey.
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