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Warren Buffett uses his annual letter to warn about Wall Street and recount Berkshire's successes
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A collection of the insights Warren Buffett offered in his annual letter Saturday
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Warren Buffett uses his annual letter to warn about Wall Street and recount Berkshire's successes
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MarketBeat Week in Review – 2/19 - 2/23
A collection of the insights Warren Buffett offered in his annual letter Saturday
Critical asset just had biggest fall on record (Ad)
West Africa bloc lifts coup sanctions on Niger in a new push for dialogue to resolve tensions
West Africa's ECOWAS bloc says it's lifting sanctions imposed on Niger over last year’s coup in a new push for dialogue
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Macron booed by French farmers who blame him for not doing enough to support agriculture
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Warren Buffett uses his annual letter to warn about Wall Street and recount Berkshire's successes
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MarketBeat Week in Review – 2/19 - 2/23
A collection of the insights Warren Buffett offered in his annual letter Saturday
Critical asset just had biggest fall on record (Ad)
West Africa bloc lifts coup sanctions on Niger in a new push for dialogue to resolve tensions
West Africa's ECOWAS bloc says it's lifting sanctions imposed on Niger over last year’s coup in a new push for dialogue
Critical asset just had biggest fall on record (Ad)
Macron booed by French farmers who blame him for not doing enough to support agriculture
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Should Investors Look to Bag Shares of Kroger’s or Albertson’s?

Should Investors Look to Bag Shares of Kroger’s or Albertson’s?

Key Points

  • Kroger purchased Albertson’s on October 14 in a deal that was valued at approximately $25 billion. 
  • The merger would make the combined company the second largest grocery chain in the United States. 
  • Critics are claiming anti-trust violations, and the deal must still get regulatory approval. 
  • Investors may want to wait to see if bigger will mean better.  
  • 5 stocks we like better than Kroger

Inflation continues to be a major story that’s driving markets. And that’s the underlying plot behind the announced merger between Kroger (NYSE:KR) and Albertsons Companies (NYSE:ACI).  

On October 13, 2022, Kroger announced that it would pay $34.10 for each Albertsons share to buy the company. This results in a $24.6 billion deal that will make the combined company the second-largest grocery chain in the United States. The $34.10 share price is a premium to the $26.21 closing price on October 14.  

The merger is not expected to be completed until 2024, and there are potential obstacles in the way. Nevertheless, it’s an appropriate time to ask if now is a good time to invest in either of the two companies.  

The answer seems to be if you believe that this is a question of bigger becoming better.  

The Deal is About Pricing Power 

This merger would combine the largest (Kroger) and second largest (Albertsons) supermarket operators in the United States. The two companies have a combined 710,000 employees and approximately 5,000 stores under various brand names.  

But investors shouldn’t be mistaken. This deal is all about Krogers and Albertsons being in position to better compete with Walmart (NYSE: WMT) and Costco (NASDAQ: COST).  

While not pure plays on the grocery sector, Walmart and Costco have significant market share. Costco has the benefit of a loyal membership base and Walmart is taking steps to expand the scale of its grocery business. And like Amazon (NASDAQ: AMZN) when Walmart decides to make such moves, it’s a company that has the size to get the lowest possible prices from its suppliers. 

To that end, Kroger announced plans to reinvest about half a billion dollars of the anticipated cost savings from this merger to reduce prices for consumers. 


What Could Go Wrong? 

The simplest answer to this is that the deal may not be approved by Congress. Within 24 hours after the announcement, Senators Elizabeth Warren and Bernie Sanders were already warning against the potential monopoly that this merger would create. 

This deal would put the combined (and yet-to-be-named) entity in second place among all grocery retailers between Walmart (#1) and Costco (#3). 

However, as noted above, the reason behind this merger is to give Kroger and Albertsons the ability to provide lower prices for its customers. This in turn will allow it to better compete with mega-chains like Walmart and Costco. 

While that may not be good news for regional chains such as Publix, the companies are pledging to close stores in areas where the two chains overlap a market. 

Will This Be a Case of Bigger Making Better? 

If the merger was supposed to excite investors, it’s hard to know what disappointment would look like. Both KR stock and ACI stock got a lift after the merger announcement, but both dropped sharply on Friday. Kroger stock finished flat for the week while Albertsons was holding onto a 6% gain (it had been up over 9%). 

The downward move in both stocks is likely due to the overarching macroeconomic issues that still weigh on the market. And chief among them is inflation which this week’s CPI and PPI numbers showed is still as much of a problem as ever. 

Analysts give each stock over a 20% upside from their respective prices. However, no analysts have weighed in on either stock since the merger announcement. That will likely come as the companies report earnings. Albertsons is due to report on October 18; Kroger’s will report on December 1.  

It may be tempting to buy one or both of these stocks (Kroger appears to be the better buy to this writer). But with food inflation far from under control, it may be best to wait until there’s more clarity about the status of the merger.  

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Should you invest $1,000 in Kroger right now?

Before you consider Kroger, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Kroger wasn't on the list.

While Kroger currently has a "Hold" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

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MarketBeat's analysts have just released their top five short plays for March 2024. Learn which stocks have the most short interest and how to trade them. Click the link below to see which companies made the list.

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Kroger (KR)
4.3266 of 5 stars
$48.21+0.8%2.41%18.76Hold$53.30
Albertsons Companies (ACI)
3.5626 of 5 stars
$21.44+0.8%2.24%9.16Hold$25.56
Walmart (WMT)
4.5467 of 5 stars
$175.56+0.1%1.30%30.59Moderate Buy$184.59
Costco Wholesale (COST)
4.4621 of 5 stars
$737.93+0.5%0.55%50.30Moderate Buy$659.96
Amazon.com (AMZN)
4.9396 of 5 stars
$174.99+0.2%0.11%60.34Buy$197.95
Compare These Stocks  Add These Stocks to My Watchlist 

Chris Markoch

About Chris Markoch

  • CTMarkoch@msn.com

Editor & Contributing Author

Retirement, Individual Investing

Experience

Chris Markoch has been an editor & contributing writer for MarketBeat since 2018.

Areas of Expertise

Value investing, retirement stocks, dividend stocks

Education

Bachelor of Arts, The University of Akron

Past Experience

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