Kroger (KR) shares rising on positive analyst reviews, possible acquisitions

CINCINNATI - A Goldman Sachs analyst has increased his rating to neutral from sell on Kroger Co. stock, impressed by rising profits and acquisition prospects.

Analyst Stephen Grambling also increased his target price to $27, up from $24. Kroger shares were up 2 percent to $28.77 in mid-morning trades. Shares are up more than 7 percent so far this year. It's one of more than three dozen stocks that hit a 52-week highs Monday morning.

Grambling cited Kroger’s “best in class” growth in earnings before interest and taxes, and an expectation that grocery spending will gradually increase this year. He also likes the company’s prospects as an acquirer of smaller grocery chains.

Kroger “has one of the cleanest balance sheets of the traditional grocers … and could benefit as a consolidator,” Grambling wrote.

Analyst Chuck Cerankosky with Northcoast Research agreed that Kroger will look to acquire all or parts of smaller chains that are expected to make assets available on the West Coast or in Chicago. Kroger has been telling analysts that it will increase capital spending to expand its presence in markets where it wants to improve market share or in cities contiguous to where it already competes.

“The easy answer is yes. The harder answer is who and how much,” Cerankosky responded to a question of whether Kroger will acquire smaller rivals.

Cerankosky has rated Kroger as a "buy" for more than a year now, with a target price of $34 on its shares.

"What I really like is the ability to merchandise stores to specific neighborhoods," he said. "That makes it relevant to a huge swath of consumers."

Kroger is due to report fourth quarter and full-year earnings March 7. Cerankosky expects a 2012 profit of $2.46, growing to $2.62 for next fiscal year. A survey of 20 analysts by Yahoo! Finance shows an expectation of 70 cents per share for the fourth quarter earnings, $2.46 for the full year.