Kroger (NYSE: KR) shares have found strong support above the $30 level, but Bank of America lowered its rating to “underperform” from “neutral” and assigned a new price target of $28. The company’s business continues to perform well, and with a $26B market capitalization, Kroger shares are not overvalued.

Fundamental analysis: Kroger is a stable company with a good position on the market

Kroger is the United States’ largest supermarket by revenue and the second-largest general retailer behind Walmart. This company’s fundamentals are excellent, and Kroger’s shares have advanced more than 8% since the beginning of 2021 year.

Kroger reported Q4 results in February; total revenue has increased 6.4% Y/Y to $30.74B while Q4 Non – GAAP EPS was $0.81 (beats by $0.13). It is important to mention that digital sales grew 118% during the quarter while the company also saw further digital profitability improvement.

“Kroger delivered strong results during our fourth quarter and for the full year 2020. We continue to gain market share, and full-year results were above the guidance we shared with you last quarter,” said Rodney McMullen, Chairman, and Chief Executive Officer.

Kroger generated tremendous free cash flow in 2020 and reduced its debt by $2 billion over the last four quarters. Due to uncertainty as COVID vaccines rollout, the company lowered its 2021 guidance but reported that it expects 2021 operating profit guidance to represent a new higher baseline.

Bank of America lowered its rating on Kroger to “underperform” from “neutral” and assigned a new price target of $28.

“We believe valuation will be pressured by tough same-store sales & margin comparisons in F2022 (lapping CO VID upside) as well as potential headwinds from fuel profitability, Ocado buildout, accelerating competition in key traffic-driving categories, & KR’s lack of general merchandise offering compared key digital competitors like WMT & TGT,” Bank of America reported.

According to the latest news, Kroger will expand its partnership with 80 Acres Farms to reach more stores in the Midwest. Another positive news is that the health care division of Kroger announced plans to launch a smartphone-enabled COVID-19 rapid antigen test.

Kroger shares are still undervalued relative to the other retail companies, EBITDA is above $5B, and the dividend remains safe. This is a stable company with a good position on the market that could deliver strong shareholder value for many years to come.

Technical analysis: Bulls remain in control of the price actionData source: tradingview.com

The important support levels are $32, $30, and $28; $38 and $40 represent the resistance levels. If the price jumps above $38, it would be a signal to buy shares, and the next target could be around $40. On the other side, if the price falls below the $30 support level, we have the open way to $28 support.

Summary

Kroger shares have advanced more than 8% since the beginning of the 2021 year, but Bank of America lowered its rating to “underperform” from “neutral” and assigned a new price target of $28.  Kroger shares are still undervalued relative to the other retail companies, EBITDA is above $5B, and the dividend remains safe.

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