Our buy rating for Kroger has been in place since March 2006. Although the company has generally had poor debt management, we feel that the rating is justified due to strengths such as the company's return on equity, attractive valuation levels, and growth in revenue, net income and earnings per share.

For the first quarter of fiscal 2008, Kroger reported a revenue increase of 11.5% year over year, while net income grew 14.5%. Earnings per share also improved, rising 23.4% from 47 cents in the first quarter of fiscal 2007 to 58 cents in the most-recent quarter. The company's total sales increased 11.5%, while identical supermarket sales increased 9.2% (with fuel) and 5.8% (without fuel). Return on equity also improved slightly in the first quarter, rising to 24.73% from 21.79% in the prior-year quarter.

On the basis of a strong start to fiscal 2008, Kroger raised its identical sales and earnings guidance for fiscal 2008. Management now anticipates identical sales growth of 4% to 5.5%, excluding fuel, while estimating earnings of $1.85 to $1.90 per diluted share. The company had previously released earnings guidance of $1.83 to $1.90 per diluted share. While management is confident in the underlying strength of the company's business model, bear in mind that future financial results could be negatively impacted by increased competition, weather and economic conditions, interest rates, and labor disputes, among other factors.

General Dynamics ( GD) designs, develops, manufactures and supports technology, products and services for use across the spectrum of military operations. The company's businesses include: mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation.

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