Critical Review: Kroger (KR) & Smart & Final (SFS)

Kroger (NYSE: KR) and Smart & Final (NYSE:SFS) are both retail/wholesale companies, but which is the better business? We will compare the two companies based on the strength of their valuation, dividends, profitability, institutional ownership, risk, analyst recommendations and earnings.

Dividends

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Kroger pays an annual dividend of $0.50 per share and has a dividend yield of 2.1%. Smart & Final does not pay a dividend. Kroger pays out 24.5% of its earnings in the form of a dividend. Kroger has raised its dividend for 9 consecutive years.

Profitability

This table compares Kroger and Smart & Final’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Kroger 1.55% 29.27% 5.07%
Smart & Final -3.04% 5.12% 1.38%

Institutional & Insider Ownership

75.7% of Kroger shares are owned by institutional investors. 0.9% of Kroger shares are owned by insiders. Comparatively, 9.6% of Smart & Final shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company will outperform the market over the long term.

Volatility and Risk

Kroger has a beta of 1.04, indicating that its share price is 4% more volatile than the S&P 500. Comparatively, Smart & Final has a beta of 1.17, indicating that its share price is 17% more volatile than the S&P 500.

Analyst Recommendations

This is a summary of recent ratings for Kroger and Smart & Final, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Kroger 0 14 11 0 2.44
Smart & Final 1 5 3 0 2.22

Kroger presently has a consensus target price of $27.05, suggesting a potential upside of 11.86%. Smart & Final has a consensus target price of $9.83, suggesting a potential upside of 89.10%. Given Smart & Final’s higher probable upside, analysts clearly believe Smart & Final is more favorable than Kroger.

Valuation & Earnings

This table compares Kroger and Smart & Final’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Kroger $122.66 billion 0.17 $1.91 billion $2.04 11.85
Smart & Final $4.57 billion 0.08 -$138.91 million $0.34 15.29

Kroger has higher revenue and earnings than Smart & Final. Kroger is trading at a lower price-to-earnings ratio than Smart & Final, indicating that it is currently the more affordable of the two stocks.

Summary

Kroger beats Smart & Final on 12 of the 17 factors compared between the two stocks.

Kroger Company Profile

The Kroger Co., together with its subsidiaries, operates as a retailer in the United States. It also manufactures and processes food for sale in its supermarkets. The company operates retail food and drug stores, multi-department stores, jewelry stores, and convenience stores. Its combination food and drug stores offer natural food and organic sections, pharmacies, general merchandise, pet centers, fresh seafood, and organic produce; multi-department stores provide general merchandise items, such as apparel, home fashion and furnishings, outdoor living, electronics, automotive products, toys, and fine jewelry; and price impact warehouse stores offer grocery, and health and beauty care items, as well as meat, dairy, baked goods, and fresh produce items. The company's marketplace stores comprise full-service grocery, pharmacy, health and beauty departments, and perishable goods, as well as general merchandise, including apparel, home goods, and toys. It operates under the banner brands, such as Kroger, Ralphs, Fred Meyer, King Soopers, etc., as well as Simple Truth and Simple Truth Organic brands. As of October 26, 2017, the company operated 2,793 retail food stores, including 1,472 supermarket fuel centers; 783 convenience stores; 2,258 pharmacies; 222 retail health clinics; and 307 fine jewelry stores, as well as an online retail store. The Kroger Co. was founded in 1883 and is headquartered in Cincinnati, Ohio.

Smart & Final Company Profile

Smart & Final Stores, Inc. operates as a food retailer in the United States. It operates in two segments, Smart & Final, and Cash & Carry Smart Foodservice. The company operates non-membership warehouse-style grocery stores under the Smart & Final banner in California, Arizona, and Nevada, as well as under the Cash & Carry Smart Foodservice banner in Washington, Oregon, Northern California, Idaho, Nevada, Montana, and Utah. Its stores offer fresh perishables and everyday grocery items, such as produce, meat and deli, dairy and cheese, grocery, and beverage products, as well as paper and packaging, and restaurant equipment and janitorial supplies. The company also provides various private label products under the First Street, Sun Harvest, Simply Value, La Romanella, Montecito, Iris, and Ambiance brands. It sells its products to household and business customers; restaurants; caterers; and various other foodservice businesses, such as food trucks and coffee houses through vendors and suppliers. As of December 31, 2017, it operated 323 stores, including 260 Smart & Final stores and 63 Cash & Carry Smart Foodservice stores. Smart & Final Stores, Inc. was founded in 1871 and is based in Commerce, California.

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