Tuesday, June 20, 2017

Kroger is starting to get attractive but Wal-Mart may be better

Amazon is buying Whole Foods so Wal-Mart, Costco, and Kroger are doomed!

Hmmmm. Kroger is a dividend payer, (albeit a bit paltry), they have been in business forever so they can spell supply chain and location. I live in the Pacific Northwest and there isn't a Kroger on every corner, but Fred Meyer, Ralphs, QFC and they are all Krogers, (not to mention the greatest of all stores for a geek on the planet, Fry's).

This strength is also their weakness, they are one of the largest grocery stores, but are spread a bit thin with electronics, jewelry, clothes and so forth. In aggregate they are a lot like Wal-Mart, but not as organized and they cannot compete on price.

Over the past five years KR was a better investment than WMT. However, if you held on for the past 12 months, KR got wasted.

KR is cheap and I am thinking about a purchase, but I do not understand them and I don't think many analysts do either.

As always debt is one of the first things to come up on my radar. They picked up $1B in 2016 to finance the purchase of Roundy's. One analyst said, "Levenson wrote that Kroger doesn’t have as much cushion as it used to in its debt ratios. But it can quickly rebuild that with strong free cash flow in the next year or two." However, 2017 has been a rough year. Morningstar rates them BBB, 4 star. However, a lot of debt is due 2019 - 2022.

Wal-Mart, by contrast has an AA- rating. And the debt due bulge is 2034 - 2043.

I need to take some money off the sidelines for one or the other.  While the world is concerned about AMZN, it might be a bit of a buying window. Lidi and Aldi, (Aldi appears to be two different companies, mostly in the Eastern half of the USA), may be threats in the future, but not in 2017 - 2018 and they both will have to face the eCommerce dragon.

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