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Kroger risk-reward ‘now skews favorably’ – JPMorgan

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© Reuters. Kroger (KR) risk-reward ‘now skews favorably’ – JPMorgan

By Sam Boughedda

JPMorgan analysts raised Kroger (NYSE:) to Overweight from Neutral, increasing the firm’s price target on the stock to $54 from $50 in a note to clients Friday.

Analysts told investors that Kroger’s risk-reward now skews favorably.

The analysts stated there are three primary elements for their upgrade. The first is the firm’s contrarian belief that while fundamentals will weaken, they won’t collapse. They said that many investors are more bearish than they are.

Kroger’s valuation was also cited as another reason, as analysts explain that “historically it’s been more fruitful to invest in KR when its multiple is this low.”

Finally, they stated that there is a “non-zero chance that the ACI deal happens.” However, most investors they speak to ascribe a 0% probability regarding the Albertsons (NYSE:) acquisition going ahead.

“Many investors we speak with on KR have a doom and gloom tone about the company these days. We aren’t exactly bullish the supermarket industry ourselves for the long term — margins are low, and competition can be fierce — and we share many concerns about owning a stock after fundamentals have peaked,” stated analysts. “But some of the rhetoric we hear about KR’s fortunes seems overly (and almost universally) pessimistic.”

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