Roth/MKM upgrades Kroger stock to Buy on strong sales and cost control

Roth/MKM upgraded Kroger (KR) to Buy with a $75 price target, up from $66, citing accelerated identical store sales, effective SG&A control, and a return to profit growth in FY2025, despite its 7.6x EV/NTM EBITDA valuation lagging peers. This upgrade follows Kroger's Q2 2025 adjusted EPS beat of $1.04, marking its sixth consecutive quarter of sequential identical store sales acceleration, although grocery unit growth remains negative. While UBS and BMO Capital maintained Neutral and Market Perform ratings respectively, Roth/MKM anticipates Kroger will benefit from channel tailwinds and deliver continued upside surprises.

Analysis

Roth/MKM has upgraded Kroger (KR) to Buy from Neutral, increasing its price target to $75.00, driven by the company's return to profit growth in fiscal year 2025 and accelerating identical store sales that are closing the gap with competitors. This follows a Q2 2025 earnings report where adjusted EPS of $1.04 surpassed the $0.99 forecast, although revenue saw a slight miss. The company has now posted its sixth consecutive quarter of sequential acceleration in identical store sales excluding fuel, with notable strength in e-commerce, retail media, and pharmacy. Despite these operational improvements and a 23.75% stock return over the past year, Kroger's valuation remains at a discount to peers, with an EV/NTM EBITDA multiple of approximately 7.6x. This positive outlook is tempered by more cautious stances from other analysts; UBS and BMO Capital maintained Neutral and Market Perform ratings, respectively. Critically, BMO highlights that while strong pharmacy trends are boosting identical sales, grocery unit growth remains in negative territory, suggesting that top-line performance may be heavily influenced by price inflation rather than increased volume.

Key Decisions for Investors

• Investors may see the valuation discount to peers, at 7.6x EV/NTM EBITDA, as a compelling entry point, especially if they believe the operational momentum and SG&A leverage can lead to a multiple re-rating.
• It is critical to monitor upcoming quarterly results for a reversal in the negative grocery unit growth trend, as a continued reliance on inflation for identical sales growth represents a key risk to the bull thesis.
• The split in analyst ratings, with Roth/MKM's upgrade contrasting with neutral stances from UBS and BMO, suggests investors should weigh the potential for upside from efficiency gains against the risk of stagnant consumer volume before initiating or adding to a position.