Options Trade – The Kroger Co. (NYSE:KR) Calls
Tuesday, June 17, 2014

**OPTIONS TRADE: Buy the KR Oct 2014 45.000 call (KR141018C00045000) at or under $3.20, good for the day. Place a protective stop limit at $1.20 and a pre-determined sell at $5.50.

by Ian Harvey

June 17, 2014

Introduction

Grocery chain The Kroger Co. (NYSE: KR) is slated to release its fiscal first-quarter numbers before the market opens on June 19. Analysts have forecast quarterly earnings of $1.05 per share. The stock has been trending steadily higher over the last three months, and is currently up 22.4% on the year, and trading just shy of its all-time high.

Summary

• Kroger Co. is a $24 billion company and one of the larger grocery retailers in the United States. The company also manufactures and processes food for sale by its supermarkets. With 3.4 million shares traded on an average day, its stock is easy to enter and exit.

• 52-week Range: $32.83 to $48.56

• Price To Book: 4.6

• Shares are cheap based on the forward price to earnings ratio.

• Kroger is anticipated to report good first-quarter earnings before the market opens on June 19, 2014.

• The consensus estimate is currently $1.05 a share, an improvement of 13 cents (12.4%) from 92 cents during the corresponding period last year.

Analysts Opinions

JPMorgan Chase & Co. restated their overweight rating on shares of The Kroger in a research note issued to investors on Thursday. The firm currently has a $53.00 price target on the stock, up from their previous price target of $48.00.

Also, the company has been the subject of a number of research reports:-

• Analysts at Ned Davis Research upgraded shares of The Kroger from a neutral rating to a buy rating in a research note on Monday, May 12th.

• Separately, analysts at Wells Fargo & Co. initiated coverage on shares of The Kroger in a research note on Tuesday, April 22nd. They set a market perform rating on the stock.

• Finally, analysts at Deutsche Bank raised their price target on shares of The Kroger from $46.00 to $50.00 in a research note on Monday, April 7th. They now have a buy rating on the stock.

Conclusion

Kroger has a solid track record of posting earnings that are at least in-line with analyst estimates. The good news for Kroger is that even though the stock is trading near its all-time high, the valuation is still OK, with a price-to-earnings ratio of 16.4.

A dominant position among the nation’s largest grocery retailers enables Kroger to sustain growth, expand store base and boost market share. It also remains well positioned to deliver higher earnings, primarily through strong super market sales growth. Management also continues to deploy capital to concentrate more on remodeling, merchandising, and other viable projects.

Because of this, the stock still has upside potential should earnings comes in OK, and at the same time it will limit the downside risk on an earnings miss.

Therefore, based on the facts above the following options trade is recommended…..


**OPTIONS TRADE: Buy the KR Oct 2014 45.000 call (KR141018C00045000) at or under $3.20, good for the day. Place a protective stop limit at $1.20 and a pre-determined sell at $5.50.



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