Supermarket chain Kroger Co. (KR) is heading into the end of 2025 under a cloud of investor skepticism. The grocery company has been squeezed by fierce competition from other e-commerce giant’s like Walmart (WMT) cautious consumer spending, and ongoing struggles to make e-commerce truly profitable. And with the collapse of its highly anticipated Albertsons (ACI) merger, management has been forced into damage-control mode. It announced plans to shutter about 60 underperforming stores and cut roughly 1,000 corporate jobs, a move that has weighed heavily on the stock.
But just when sentiment looked stuck in the freezer aisle, Kroger delivered a potentially powerful catalyst. On Dec. 23, the company approved a $2 billion expansion of its share-repurchase program, lifting total remaining buyback capacity to about $2.9 billion. That’s a clear signal that management believes the stock is undervalued and sees strong cash-generation ahead, even as the broader retail environment remains challenging.
In fact, since 2015, Kroger has bought back roughly 35% of its outstanding shares, highlighting a long-standing commitment to rewarding shareholders. Chairman and CEO Ron Sargent reinforced that message, saying the new authorization reflects the board’s confidence in Kroger’s growth outlook and balance sheet. He also emphasized that the company is producing “durable free cash flow” and will fund buybacks using cash from operations and existing liquidity, all while protecting its investment-grade credit rating.
So, with this fresh commitment to shareholder returns now on the table, Kroger suddenly looks far more interesting than it did mere weeks ago.
Kroger is one of America’s largest and most enduring supermarket chains, dedicated to bringing fresh, affordable food and everyday essentials to millions of customers. Founded in 1883 and headquartered in Cincinnati, Ohio, Kroger operates over 2,700 stores across 35 states under a variety of well-known banners, serving about 11 million shoppers each day both in-store and online. The company’s retail footprint includes supermarkets, multi-department stores, fuel centers, and pharmacies, and is backed by an extensive portfolio of private-label brands that help differentiate its offerings and drive customer loyalty.
Kroger’s mission, centered on quality, value, and convenience, has made it a staple in American communities and a major player in the U.S. grocery landscape. But despite its strong presence, the company’s shares have been struggling in 2025. Currently valued at a market capitalization of $39.8 billion, the stock is up only 3.39% so far in 2025, heavily lagging behind the broader S&P 500 Index ($SPX), which has surged 17.8% over the same stretch.
In fact, the stock has slipped into negative territory, falling 5.68% over the past month after its early-December earnings report failed to impress investors. Shares have now retreated nearly 18.4% from the 52-week high of $74.90, reached in August, highlighting sentiment that is sharply cooling. However, from a valuation standpoint, Kroger looks increasingly compelling. The stock is trading at just 13 times forward earnings and 0.27 times sales, both well below the sector medians of 15.8x and 1.03x, respectively.
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In addition to aggressive share buybacks, the company delivers cash straight into shareholders’ pockets through dividends. With an impressive 19-year streak of consecutive dividend hikes, the stock has firmly established itself as a go-to income play for long-term investors. Most recently, on Dec. 1, the company paid a quarterly dividend of $0.35 per share, which works out to an annualized payout of $1.34 per share. At current levels, that translates into a compelling 2.13% dividend yield, a steady and reliable stream of income on top of capital returns.
Kroger’s third-quarter earnings, released on Dec. 4, delivered a mixed but telling snapshot of the grocery giant’s momentum. While the stock slid 4.6% on the day, the underlying business showed steady progress. Revenue inched up to $33.9 billion from $33.6 billion a year ago, even though it came in slightly below Wall Street’s $34.3 billion forecast.
Yet, profitability moved in the right direction. Gross margin improved to 22.8% from 22.4% last year, driven by a combination of lower supply-chain costs, reduced shrink, strong performance from Kroger’s private-label brands, and the sale of its Specialty Pharmacy business. These gains were partly offset by the rapid growth in pharmacy sales, which typically carry thinner margins, and by continued price investments to stay competitive.
Additionally, Kroger kept its growth engine humming. Identical sales rose to 2.6% from 2.3% a year earlier, showing that customer traffic and basket sizes are still expanding in a challenging consumer environment. On the bottom line, adjusted earnings per share climbed 7.1% year-over-year (YOY) to $1.05, edging past Wall Street’s $1.04 estimate.
Management struck an optimistic tone, highlighting especially sturdy momentum in e-commerce. The company said its online business delivered another standout quarter and, following a completed strategic review, is now on track to become profitable by 2026, a major milestone that could reshape Kroger’s long-term growth story. Looking ahead, Kroger’s full-year 2025 guidance reinforces that confidence.
The company tightened its identical-sales growth range to 2.8%–3% and raised the lower end of its EPS outlook to $4.75–$4.80, pointing to better-than-expected profitability. At the same time, Kroger reaffirmed its ability to generate $2.8–$3 billion in free cash flow while continuing to invest $3.6–$3.8 billion in capital spending.
Despite recent weakness in the stock, Wall Street remains constructive on Kroger. The shares carry a “Moderate Buy” consensus rating, with 11 of the 21 analysts tracking the company rating it a “Strong Buy,” while the other 10 recommend “Hold.” That skew shows that bullish conviction still outweighs caution.
The price targets also paint an encouraging picture. Kroger’s average target of $75.40 suggests the stock could climb 19.2% from current levels, while the Street-high target of $85 points to an upside of as much as 34.39% from here. For a defensive retail name with a fresh buyback catalyst, that’s an attractive risk-reward setup.
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On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
