The Kroger Company Module3
Kroger • 343,000 Employees • Headquarter in Cincinnati • Primary store is “combo store” • Multi-department, Marketplace, Price Impact Stores as well • Last Saturday in January • Comparables are Whole Foods, Costco, Walmart
Source: Mergent Online Quick flashback to module 2, Kroger is very different in that using 2% for NEA calculations would not work. They have very little cash on their balance sheet relatively.
Background Facts for Kroger Comparables -Most Recent Kroger Stock Price was 36.08 on the NYSE ***Stock price is very important for next few slides…keep in mind the 36.08 -52 week high was 43.05 -Came across a big problem in Module 3 in terms of comparables
Estimating Value Using EPAT Multiple • -Notice anything wrong? Kroger’s actual EPAT market multiple is 17.7
Estimating Value using NI multiple • -Notice anything wrong? Kroger’s actual NI market multiple is 12.45
Estimating Value using CI Multiple Kroger’s actual CI market multiple is 11.73
Halfway Question (Attempt at lame joke) Up to this point what looks more comparable these companies or the weather in the Bahamas right now versus the weather outside the window?
Sales Multiple Valuation • $140….now we’re just getting crazy! • -This is why you have to be a smart investor…This valuation reminded me of something Jordan Belfort would try and sell
Putting it All Together • -Obviously Kroger, Whole Foods, and Costco are not very comparable • -Why? I came to a few conclusions (BM, Margins, etc…) • -What to do next? • -Think back to Ewa’s (Groupmate) presentation and the premium that WF can provide…that is showing up here…. -This made me think of Warren Buffet’s investing philosophy and why he doesn’t invest in technology. Also, FIG groups because of their comparability
New Question • -Does Whole Foods actually incur any costs at all whatsoever?
Conclusion • -I’m actually glad this happened because it changed point of view on valuations • -Proves this is why you have to go much further when actually looking to invest than by the book analysis • -Finding companies with similar characters besides just the leaders in market cap is what seems to be important for valuation purposes • -Look forward to actually finding some comparable companies to Kroger QUESTIONS?