Kroger Company (KR)

Conclusion

Kroger Company is a US food and drug retailer, founded in 1883 and based in Cincinnati. It runs combination food and drug stores, multi-department and marketplace stores, price impact warehouses, fuel centers and online platforms. At 68.01 USD on 2026-11-09, its market capitalisation is 40.2 billion USD.

The verdict is overvalued. The price-to-earnings ratio is 37.0 against a ten-year median of 15.3, the enterprise value to EBITDA is 11.3 against 7.8, and the price-to-book is 6.9 against 3.6. The DCF gives 58.56 USD per share at a discount rate of 8.9%. The fair value from historical multiples is 35.35 USD. The fair value band runs from 37.57 to 56.35 USD with a midpoint of 46.96 USD, a margin of safety of -30.9% at the current price. The reverse DCF implies growth of 4.9% a year, while revenue grew 2.2% a year over five years and free cash flow per share grew 0.2% a year over the same period.

What holds the case up is free cash flow conversion of 2.09x on a trailing basis, a Piotroski score of 7 out of 9, and a share count that fell 3.5% a year over five years. What could break it is net debt to EBITDA of 4.05x, a current ratio of 0.70, and a return on invested capital of 6.0% against a weighted cost of capital of 7.1%. Earnings per share has also fallen 14.1% a year over five years, so the price relies on a recovery that the recent record does not yet show.

Financial health

Financial strength is red, held back by leverage and liquidity: net debt to EBITDA of 4.05x and a current ratio of 0.70 are both assessed as bad, and the quick ratio is 0.21. Debt to equity is 4.14 and interest coverage is 3.03x, assessed as neutral. The Altman Z-score of 4.42 falls in the safe zone, though the Altman model was designed for manufacturers and Kroger is a retailer. Insolvency risk: medium, about 4.0% by the estimate of the Ohlson model over one to two years. A high share of the balance sheet is funded by debt, so the company depends on steady cash generation to service it.

Earnings quality

Earnings quality is green. Free cash flow conversion is 2.09x on a trailing basis and 1.32x over five years, and the accrual ratio of -0.12 suggests cash earnings run ahead of reported profit. Stock-based compensation is only 0.12% of revenue, and free cash flow after it is 2.1 billion USD. The share count fell 3.5% a year over five years, which points to buybacks. The Piotroski score is 7 out of 9. The Beneish M-score is not available. The company beat earnings expectations in 6 of the last 8 quarters, with an average surprise of 2.6%. Analysts have cut next-year estimates: 9 downward revisions against 2 upward over the last 30 days.

Profitability

Profitability is yellow. The gross margin of 23.1% is above its ten-year median of 22.3%, while the operating margin of 1.4% is below its median of 2.1% and the net margin of 0.7% is below its median of 1.5%. Return on invested capital is 6.0% against a weighted cost of capital of 7.1%, a difference of -1.1%, which is assessed as neutral. The five-year median return on invested capital is 10.1%. Return on equity of 18.6% is inflated by leverage. The DuPont split shows a net margin of 0.69%, an asset turnover of 2.96x and an equity multiplier of 8.4x, so most of the return comes from borrowing and fast stock turnover rather than from margin.

Growth

Growth is yellow. Revenue compound growth is -0.1% over three years, 2.2% over five years and 3.0% over ten years, and revenue grew in 8 of the last 10 years. Earnings per share compound growth is -20.5% over three years, -14.1% over five years and -2.9% over ten years. Free cash flow per share grew 44.5% a year over three years but only 0.2% over five years and 12.3% over ten years, so the recent rebound follows a weak middle period. Consensus expects next-year earnings growth of 5.5%.

Valuation

Valuation is red. The price-to-earnings ratio of 37.0 is 141.6% above its ten-year median of 15.3. The enterprise value to EBITDA of 11.3 is 45.7% above its median of 7.8, the price-to-book of 6.9 is 92.4% above its median of 3.6, and the price to free cash flow of 17.7 is 9.7% above its median of 16.1. The DCF gives 58.56 USD per share at a discount rate of 8.9%, with growth of 3.0% in the first stage and 2.5% in the terminal stage. The fair value from historical multiples is 35.35 USD. The fair value band runs from 37.57 to 56.35 USD with a midpoint of 46.96 USD, a margin of safety of -30.9%. These figures rest on fixed assumptions, such as a 5% equity risk premium and capped growth, so they are an order of magnitude rather than a price target. The reverse DCF implies growth of 4.9% a year against 2.2% revenue growth and 0.2% free cash flow per share growth over five years. The dividend yield is 2.2% and the payout on free cash flow is 39.4%.

Risks

The weakest numbers would each add pressure if they worsened. Net debt to EBITDA of 4.05x leaves little room for an earnings decline before debt service becomes harder. A current ratio of 0.70 means short-term obligations exceed liquid assets, so the company depends on continuing cash flow to meet them. A return on invested capital of 6.0% below a cost of capital of 7.1% means growth currently adds little value, and falling estimates for next year point to further pressure. The Beneish M-score is not available, and the debt maturity schedule and revenue by segment are not included, so debt refinancing risk and the performance of individual business lines cannot be judged. This analysis relies only on the figures provided and does not cover events after the dates shown.