Kroger🛒Pre-Earnings Sentiment Spotlight 9/10/21
$KR news coverage shows high degrees of pessimistic sentiment in recent week's + the current all-time high price heading into earnings = seemingly overhyped stock
Hello everyone, and welcome to this week’s bonus letter. In today’s issue we will be putting retail grocery giant Kroger ($KR) under the gun, to see if the company’s turbulent news conversation of the past month can provide any insight into their upcoming Q2 earnings release, scheduled for Friday, September 10th. As always, please like or comment if you enjoyed the report or have any questions, and be sure to subscribe to stay up-to-date on all our stock market news sentiment discoveries:
1. Introduction to Kroger Co. ($KR) 🛒
Over the past few years, the retail grocery landscape has evolved dramatically — brick and mortar giants like Walmart, Target, and Costco have stepped up their game and begun providing more online, delivery, and pick-up options, while online retailers Amazon, Instacart, and the like have swooped in from the other side of the spectrum with gig delivery drivers and employee-less brick and mortar locations of their own.
With all of this excitement and novelty blossoming in the industry, one might be surprised to hear that a traditional supermarket chain like Kroger has been one of the hottest stocks of the bunch over the past year, shooting up 50% in recent months to a new all-time high stock price heading into earnings tomorrow (see below). The stock has benefited handsomely from the work from home COVID-economy of the past year and change, and with food inflation and emerging technology disrupting the industry currently, has managed to compete with the bigger fish in the pool for the time being.
Following along with its upward trend in price, Kroger has quickly become one of the most talked-about tickers in stock market news coverage, and a polarizing one at that. Over the month of August, $KR received more headlines than 89% of all stock tickers, ranking third in its peer group (behind Amazon $AMZN and Walmart $WMT) — of these headlines, approximately 43% have leaned optimistically and 48% have leaned pessimistically in terms of sentiment expressed about Kroger as a company, with the remaining 9% being considered “neutral” sentiment; this is one of the lowest neutrality rates on the market.
While some analysts and investors say its flowing consistency in profitability make it a great value stock to buy and hold (and potentially even a good hedge against food inflation compared to others), some say the all-time high price is a blinding sign of $KR being overbought and oversold — no one seems to agree on which of the two is actually the case. The two articles below (published on the same day this week) argue both sides of the coin, and it’s almost funny how opposite the two are in their theses of what to expect from the stock:
“Kroger Stock is Still Undervalued” | Seeking Alpha (67% optimistic)
“Kroger Overbought and Overpriced” | Yahoo Finance (47% pessimistic)
This leaves one big question: is Kroger overhyped in news conversation, or ripe to be sniped before its earnings are released tomorrow? We’ll spend the remaining two sections diving into what we think the answer is, and what you should do after tomorrow’s earnings.
2. $KR News Events and Headlines
Over the past 90 days, Kroger has appeared in just over 300 unique finance article headlines, well above average for a company of its size and reputation. Much of the conversation has centered around the company’s managerial operations of late, including some controversial ones, like its decision to cut expenses by closing stores in Long Beach and Seattle when both cities started enforcing mandated pandemic pay increases for employees during the early months of 2021, or its election of Former US Labor Secretary (and wife of Mitch McConnell) Elaine Chao to its board of directors — both of which sparked outrage on Twitter and literal boycotts of their stores.
Some sparse but more optimistic headlines as of late include the company’s previous earnings report, in which it increased its full-year guidance and announced a $1 billion stock buy-back program (despite missing on consensus EPS and revenue forecasts). Following earnings, a 13F report revealed that Berkshire Hathaway ($BRK) CEO Warren Buffett bought nearly 11-million shares of Kroger last quarter. The summarized timeline of crucial $KR news events so far this year:
Top $KR Headlines by Sentiment 📰
Of the articles published about Kroger in recent months, many have been either highly optimistic, pessimistic, speculative (ie. future-tense), and reactive (ie. past-tense) in their sentiment expression of $KR. Here are the top articles scored across each of these metrics from the past two months:
Most Optimistic Article:
Warren Buffett Bucks Wall Street by Adding More Kroger Stock to His Portfolio | Market Watch 8/17/21 (optimism score: 87%)
Most Pessimistic Article:
Why Customers Are Furious With Kroger And Boycotting Its Stores: ‘This Is The Last Straw’ | Benzinga 8/5/21 (pessimism score: 95%)
What's Next for Kroger Stock''s Recent Rally? | Schaefer Research 8/2/21 (speculation score: 72%)
Most Reactive Article:
Kroger Named Winsight Grocery Business of the Year | Windsight Grocery Business 8/11/21 (reaction score: 67%)
2. $KR News Sentiment vs. Price
Over the past month, $KR stock price and news sentiment have shown a -0.42 correlation (which is notably negative). As mentioned, Kroger has been one of the most profitable stocks in the retail grocery business of the past year, and the stock market has reflected this EPS almost perfectly, rising 43.57% so far in 2021, and 7.83% in the past month alone. However, over the same period, while stock price has gone up and up, the stock’s conversation in news coverage has taken a dramatic shift towards highly negative conversation overall. Since the start of August, the vast majority of articles written about $KR have been written with pessimistic expression. Many of these articles have highlighted the pessimistic events mentioned above, while some yet focus on the stock’s all-time high price saying that a post-earnings “sell the news” dip is inevitable. Kroger’s stock price vs. average daily news sentiment is shown below:
Often times it is the case that a stock’s news coverage trails its price performance by days or even weeks. However on other occasions — especially when enough highly impactful news events are stringed together in succession — the news actually has the potential to influence the price performance in return. Kroger’s recently pessimistic news sentiment may prove to be enough to swing the price pendulum the other direction, especially if its Q2 Earnings Report is as lackluster as could be expected from articles such as this.
3. Kroger Hype-or-Snipe Rating
Given the current all-time high price of $KR heading into tomorrow’s earnings, along with the recent string of significant pessimism expressed in $KR news coverage, our algorithms give $KR a Hype-or-Snipe rating of -0.68. On a scale from -1.00 (being extremely overhyped price) and +1.00 (being extremely underhyped price), this means that $KR stock is currently highly overhyped and poorly reflected in the news, signaling the considerable potential for a correction in stock price following tomorrow morning’s earnings (read our first $NVDA sentiment spotlight for a full description of our Hype-or-Snipe Rating).
Though it feels a bit weird to be betting the flip side of the coin as the great Warren Buffett, keep in mind that he makes his bets on the long term time horizon (despite the fact that he literally just turned 91) — whereas this rating indicates adverse news coverage vs. stock price correlation into the short-term (ie. <3 months). While the momentum as of late has definitely swung under the line of healthy criticism, the caveat is that it only takes a few highly positive news events to swing the pendulum in the optimistic direction. While Kroger’s earnings tomorrow will likely be an improvement from the underperforming numbers released last quarter, I don’t expect them to be enough to move the ball in the opposite direction. That’s it for today’s spotlight report, let us know what you think below, thanks for reading! 🙏
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