Analyst Calls Kroger’s ‘Deteriorating Business’ the Reason To Sell

Melius Research on Tuesday recommended selling Kroger stock, citing concerns about the fundamentals of the supermarket chain.

Melius gave Kroger (KR) a price target of $58, which is 17% below where the shares closed Tuesday. Melius’s stance appears to be an outlier among analysts, with half of those who follow the company and were polled by Visible Alpha giving Kroger shares a “buy” rating and half a “hold” rating. 

The Melius research team described Kroger as “a deteriorating business” facing several issues. Melius said Kroger is losing customers to Walmart (WMT), may be liable for billions in a lawsuit brought by Albertsons (ACI), and is contending with leadership vacancies. Former CEO Rodney McMullen resigned last month after a probe into his conduct. 

“Investors today believe they can ‘hide’ in [Kroger] given the company’s lack of tariff exposure,” Melius wrote in a note on Tuesday. “Lack of tariff exposure does not make [Kroger] safe.”

Company executives reportedly said in early March that as a domestic retailer, Kroger has less exposure to international tariffs than some of its rivals, and would not face "a massive impact."

Kroger Stock Rose After Collapse of Albertsons Merger

Kroger shares have shot up almost 20% over the past six months. Some traders may view the stock as a safe investment because supermarkets are relatively insulated from tariffs, Melius said. 

Investors also snapped up Kroger shares late last year when Kroger and Albertsons abandoned plans to merge after a judge blocked the deal. (Albertsons filed a lawsuit alleging Kroger’s efforts to secure approvals for the merger were deficient, and Kroger called the claims baseless.)

Kroger shares finished up about 0.6% Tuesday, at about $68.12. That’s slightly above the $67.67 consensus price target compiled by Visible Alpha.