KR – Moving lower on the Best Idea Short list. Kroger shares have since pulled back from the FQ4 earnings report. The upcoming court date in Colorado is looming in seven weeks. We are waiting to hear whether the court considers supercenters and warehouse clubs, which Kroger is losing share to, as competitors. Kroger shares would benefit from the approval of the merger. With units per transaction falling by HSD% according to our estimates, Kroger needs the Albertsons accretion.
BUD – Anheuser Busch InBev moves to the top of our short list. Spending to recover its lost share while the beer category itself continues to struggle is where the company finds itself. Consensus expectations are too high for margin recovery and sales growth.
PRGO – Raising on the Long list. The company’s cheap valuation has encouraged some investors to look into the company’s growth prospects. The current environment, a muted inflationary outlook combined with consumers seeking value, is favorable for the company’s store label products. The infant formula business will have negatively impacted results for four years, leaving few investors who remember when it was stable. Expectations are low and infant formula should improve sequentially. Will a spin-off or sale of Sanofi’s consumer healthcare business be a positive for the subsector?
COST – Lowering Costco on the Long list. We prefer Walmart over Costco among the large cap food retailers gaining share. Our projections for Costco do not include a membership fee increase this year. We presented our long Black Book on Walmart last week. Walmart has a top-line driver in digital and margin expansion drivers in digital/advertising and automation that are underestimated. CLICK HERE for the Walmart Black Book replay.
BRCC – Raising on the Long list. Black Rifle Coffee continues to make distribution gains. The latest gains were an initial rollout of RTDs to a handful of locations in Texas. Although the focus of growth is bagged coffee, RTDs are still opening up doors for the company.
GIS – Adding to the Short Bias list. General Mills reported in-line FQ4 results, but expectations of a more challenging operating environment led to a disappointing outlook. Management expects flattish EPS in F2025 with gradually improving volume trends. Cost savings will be used to offset input cost inflation of 3-4%. Growing organic volumes will be challenging in the food sector. Margin estimates will likely come down across the board.
Our updated position monitor:
