Ahead of the Bell: Jefferies ups Kroger to "Buy"

NEW YORK -- A renewed focus on investment returns and continuing market share gains should lead to higher earnings for The Kroger Co., an analyst said Tuesday, as he lifted his rating on the stock to "Buy."

Scott A. Mushkin of Jefferies & Co. said his industry research suggests that Kroger, the nation's largest traditional grocer, is taking a bigger slice of the grocery market from its peers.

The analyst also noted that the company's core earnings growth appears to be accelerating. And this growth is being driven without a significant uptick in promotions or discounts, he said, which would cut into sales margins. These gains are even coming in the face of Wal-Mart Stores Inc.'s new investments and store openings.

And even if the broader economy was to worsen or the competitive climate was to intensify, Mushkin said shares of the Cincinnati-based company should hold up.

He believes the stock could reach at least $30 within a year, indicating possible growth of 28 percent from Monday's closing price.

Last month, Kroger said its second-quarter profit dipped slightly due to higher expenses and tax rate. But it said a key sales figure rose during the period as its loyalty program helped attract shoppers.

Kroger shares have traded in a tight range over the last year, falling as low as $20.98 and as high as $24.83, and will start the session down about 3 percent since the start of 2012.