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4 Biggest Earnings Reports You Must Watch Next Week

KR ChartKR data by YCharts

Kroger (KR)

52-Week Range: $20.98 - $24.83

Book-Value: $7.44

Price-To-Book: 3.06

Strong second-quarter earnings growth is expected by Wall Street before the market opens on Sept. 7, 2012. The consensus mean is 49 cents a share, a gain of 8 cents (16.3%) from 41 cents during the corresponding quarter last year. Estimates range from 46 cents up to 53 cents.

Weinstein Estimate: I believe Kroger beats by at least a penny. Gas and food inflation may be here now, but most of last quarter was mild. Keep a close eye on guidance because the future outlook will impact Kroger more than last quarter's results.

Last quarter, Kroger crushed expectations, reporting 78 cents, six cents higher than expected. Analysts remain bullish with a price target of $26.

Retail grocery is a tough business as Supervalu (SVU) investors can attest. With major retailers like Wal-Mart, Target (TGT), and Costco (COST) adding competition, it's easy to wonder how grocers can make it.

Whole Foods Market (WFM) is the darling on Wall Street for grocers. Whole Foods has so far done what others haven't mastered, competing against the big guys like Wal-Mart.

After flirting with the 200-day moving average in June, Kroger's stock has slumped into a bearish trend. The 90- and 200-day moving averages are both trending lower and the suspension of Supervalu's dividend in July sent Kroger's shares lower in sympathy. The market clearly overacted after the Supervalue dividend cut, but until Kroger is able to trade above $23, the bearish trend will likely continue.

Is Kroger at risk for lowering or halting its dividend? It doesn't appear so at this time. Cash flow and profitability easily support the current 2.1% yield (46 cents). The payout is less than half the company's profits. In fact, over the last five years, the dividend has grown by an average of 17.1% per year. The last increase came last year.

Kroger isn't that cheap to me. The mean fiscal-year estimate price-to-earnings ratio is 9.3, based on earnings of $2.38 per share this year. Historically an earnings multiple under 10 is very cheap, especially for a dividend payer, but with companies like Wal-Mart and Target trading at a premium of only 30%, it's not easy to make the case to buy Kroger over the dominant players without fully understanding the space.

Shareholders receive 46 cents annually in dividend payments. The yield based on a recent price is 2.07%. Over the last five years, the dividend has grown by an impressive average of 17% per year.

Kroger's short interest based on the float is small at 2.3%.

Background: Kroger Company is one of the larger grocery retailers (about 2,400 stores in 31 states) in the United States. The company also manufactures and processes food for sale by its supermarkets. Kroger trades a recent average of 4.2 million shares per day with a marketcap of $12.1 billion.

KR Earnings Per Share ChartKR Earnings Per Share data by YCharts

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