Kroger's Bullish Article on E-Commerce and Buybacks Clashes with DeepValue's Cautious Stance on Valuation and Leverage

What happened

A Seeking Alpha article published on January 5, 2026, reiterates Kroger as a Buy, highlighting 17% YoY e-commerce growth, a $2.9 billion free cash flow guidance, and a new $2 billion buyback authorization to signal management confidence. In contrast, the DeepValue master report, based on SEC filings, maintains a WAIT recommendation due to Kroger's expensive valuation at ~52x TTM EPS and ~87% overvaluation per a conservative DCF model. The report notes elevated leverage with net debt/EBITDA of 2.76x and interest cover of 2.18x, alongside legal overhangs from opioids and the failed Albertsons merger that risk capital allocation. While the article emphasizes digital momentum and shareholder returns, the report cautions that these positives are offset by structural headwinds in a slow-growth, competitive grocery industry. Thus, the core investment thesis remains constrained, with the stock's rich multiples leaving limited margin of safety despite operational strengths.

Implication

The aggressive $2 billion buyback may provide short-term support but could strain the balance sheet given elevated leverage, necessitating careful monitoring of net debt/EBITDA trends. E-commerce growth of 17% YoY is positive, but profitability improvements must materialize to justify the premium valuation in an industry with 1-3% nominal growth. Legal resolutions on opioids and Albertsons are critical for de-risking the stock and enabling more flexible capital allocation beyond buybacks. Without a material price pullback or clear de-risking, the margin of safety remains insufficient, making the WAIT stance prudent for value investors. Key watch items include identical sales ex-fuel performance and retail media growth to assess if digital initiatives can sustainably enhance FCF and offset valuation concerns.

Thesis delta

The new article does not shift the DeepValue thesis, as e-commerce growth and buybacks are already reflected in Kroger's high valuation, with the stock still ~87% overvalued per DCF. However, it reinforces the need for sustained execution in digital and data monetization to potentially move from WAIT to POTENTIAL BUY, but this requires evidence of structurally higher normalized FCF or resolution of legal overhangs, which remain uncertain.