Grocery retailer Kroger (KR) has announced a $7.5 billion stock buyback program following the termination of its $24.5 billion merger with Albertsons (ACI). This new authorization replaces Kroger’s previous $1 billion buyback program, which was approved in September 2022. Following the news, KR stock gained about 3% in yesterday’s after-market trading session, reflecting investors’ optimism about the company’s financial standing.
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As part of the buyback program, Kroger will enter an accelerated share repurchase agreement for nearly $5 billion of its common stock. The company aims to use its free cash flow and debt financing to fund the repurchase program.
Importantly, this new buyback plan marks the end of a more than two-year pause on repurchases. This move reflects Kroger’s stable financial position and focus on delivering value to shareholders.
Kroger to Redeem $4.7 Billion in Senior Notes
In addition to the stock buyback, Kroger said that it will initiate the redemption of $4.7 billion of its senior notes issued in August 2024. Noteholders will receive a redemption price equal to 101% of the principal amount, along with the accrued and unpaid interest. This decision comes as a result of a special mandatory provision triggered by the fallout of its deal with Albertsons.
While the merger could have aided Kroger’s growth, the company remains well-poised to focus on its core business and pursue strategic initiatives.
Jefferies Analyst Bullish on KR Stock
Following the deal cancellation, Jefferies analyst Robert Dickerson reiterated a Buy rating on Kroger stock with a price target of $73, implying 19% upside potential (to see Dickerson’s track record, click here).
According to the analyst, Kroger’s improved performance, including a recovery in store visit traffic and a more profitable fuel business, strengthens its prospects as a standalone company. Regarding the share buyback, Dickerson noted that the share buyback would allow shareholders to see returns more quickly than waiting for the realization of merger synergies.
Is KR a Good Stock to Buy Today?
On TipRanks, KR has a Moderate Buy consensus rating based on seven Buy and five Hold ratings assigned by analysts in the past three months. At $65.50, the average Kroger price target implies 6.8% upside potential. Shares of the company have gained about 37% year-to-date.
