Intrinsic value of Kroger - KR

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$29.65

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$29.65

 
Intrinsic value

$30.43

 
Up/down potential

+3%

 
Rating

hold

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of KR stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 27.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  5.01
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
Revenue, $m
  115,337
  121,104
  127,159
  133,517
  140,193
  147,202
  154,563
  162,291
  170,405
  178,926
  187,872
  197,265
  207,129
  217,485
  228,359
  239,777
  251,766
  264,355
  277,572
  291,451
  306,023
  321,325
  337,391
  354,260
  371,973
  390,572
  410,101
  430,606
  452,136
  474,743
  498,480
Variable operating expenses, $m
 
  117,092
  122,932
  129,063
  135,501
  142,261
  149,359
  156,812
  164,637
  172,854
  181,481
  190,237
  199,749
  209,737
  220,223
  231,235
  242,796
  254,936
  267,683
  281,067
  295,120
  309,876
  325,370
  341,639
  358,721
  376,657
  395,490
  415,264
  436,027
  457,829
  480,720
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  111,901
  117,092
  122,932
  129,063
  135,501
  142,261
  149,359
  156,812
  164,637
  172,854
  181,481
  190,237
  199,749
  209,737
  220,223
  231,235
  242,796
  254,936
  267,683
  281,067
  295,120
  309,876
  325,370
  341,639
  358,721
  376,657
  395,490
  415,264
  436,027
  457,829
  480,720
Operating income, $m
  3,436
  4,012
  4,227
  4,454
  4,692
  4,941
  5,204
  5,479
  5,768
  6,072
  6,390
  7,028
  7,380
  7,749
  8,136
  8,543
  8,970
  9,418
  9,889
  10,384
  10,903
  11,448
  12,021
  12,622
  13,253
  13,915
  14,611
  15,342
  16,109
  16,914
  17,760
EBITDA, $m
  5,776
  6,481
  6,805
  7,145
  7,502
  7,877
  8,271
  8,685
  9,119
  9,575
  10,054
  10,556
  11,084
  11,638
  12,220
  12,831
  13,473
  14,146
  14,854
  15,596
  16,376
  17,195
  18,055
  18,957
  19,905
  20,901
  21,946
  23,043
  24,195
  25,405
  26,675
Interest expense (income), $m
  505
  536
  594
  654
  718
  784
  854
  928
  1,005
  1,086
  1,170
  1,260
  1,353
  1,452
  1,555
  1,663
  1,777
  1,897
  2,022
  2,154
  2,292
  2,438
  2,590
  2,750
  2,919
  3,095
  3,281
  3,475
  3,680
  3,894
  4,120
Earnings before tax, $m
  2,914
  3,475
  3,633
  3,800
  3,974
  4,157
  4,349
  4,551
  4,763
  4,986
  5,220
  5,769
  6,026
  6,297
  6,581
  6,879
  7,193
  7,522
  7,867
  8,230
  8,611
  9,010
  9,430
  9,871
  10,334
  10,820
  11,330
  11,866
  12,429
  13,020
  13,640
Tax expense, $m
  957
  938
  981
  1,026
  1,073
  1,122
  1,174
  1,229
  1,286
  1,346
  1,409
  1,557
  1,627
  1,700
  1,777
  1,857
  1,942
  2,031
  2,124
  2,222
  2,325
  2,433
  2,546
  2,665
  2,790
  2,921
  3,059
  3,204
  3,356
  3,515
  3,683
Net income, $m
  1,975
  2,537
  2,652
  2,774
  2,901
  3,035
  3,175
  3,323
  3,477
  3,640
  3,811
  4,211
  4,399
  4,597
  4,804
  5,022
  5,251
  5,491
  5,743
  6,008
  6,286
  6,578
  6,884
  7,206
  7,544
  7,899
  8,271
  8,662
  9,073
  9,504
  9,957

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  322
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  36,505
  37,987
  39,887
  41,881
  43,975
  46,174
  48,483
  50,907
  53,452
  56,125
  58,931
  61,877
  64,971
  68,220
  71,631
  75,212
  78,973
  82,922
  87,068
  91,421
  95,992
  100,792
  105,831
  111,123
  116,679
  122,513
  128,639
  135,071
  141,824
  148,916
  156,361
Adjusted assets (=assets-cash), $m
  36,183
  37,987
  39,887
  41,881
  43,975
  46,174
  48,483
  50,907
  53,452
  56,125
  58,931
  61,877
  64,971
  68,220
  71,631
  75,212
  78,973
  82,922
  87,068
  91,421
  95,992
  100,792
  105,831
  111,123
  116,679
  122,513
  128,639
  135,071
  141,824
  148,916
  156,361
Revenue / Adjusted assets
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
  3.188
Average production assets, $m
  21,421
  22,525
  23,652
  24,834
  26,076
  27,380
  28,749
  30,186
  31,695
  33,280
  34,944
  36,691
  38,526
  40,452
  42,475
  44,599
  46,829
  49,170
  51,628
  54,210
  56,920
  59,766
  62,755
  65,892
  69,187
  72,646
  76,279
  80,093
  84,097
  88,302
  92,717
Working capital, $m
  -2,520
  -606
  -636
  -668
  -701
  -736
  -773
  -811
  -852
  -895
  -939
  -986
  -1,036
  -1,087
  -1,142
  -1,199
  -1,259
  -1,322
  -1,388
  -1,457
  -1,530
  -1,607
  -1,687
  -1,771
  -1,860
  -1,953
  -2,051
  -2,153
  -2,261
  -2,374
  -2,492
Total debt, $m
  14,077
  15,230
  16,778
  18,403
  20,110
  21,902
  23,783
  25,759
  27,833
  30,012
  32,299
  34,700
  37,222
  39,869
  42,649
  45,568
  48,633
  51,851
  55,230
  58,778
  62,504
  66,415
  70,523
  74,835
  79,364
  84,118
  89,111
  94,353
  99,857
  105,636
  111,704
Total liabilities, $m
  29,807
  30,960
  32,508
  34,133
  35,840
  37,632
  39,513
  41,489
  43,563
  45,742
  48,029
  50,430
  52,952
  55,599
  58,379
  61,298
  64,363
  67,581
  70,960
  74,508
  78,234
  82,145
  86,253
  90,565
  95,094
  99,848
  104,841
  110,083
  115,587
  121,366
  127,434
Total equity, $m
  6,698
  7,028
  7,379
  7,748
  8,135
  8,542
  8,969
  9,418
  9,889
  10,383
  10,902
  11,447
  12,020
  12,621
  13,252
  13,914
  14,610
  15,341
  16,108
  16,913
  17,759
  18,647
  19,579
  20,558
  21,586
  22,665
  23,798
  24,988
  26,237
  27,549
  28,927
Total liabilities and equity, $m
  36,505
  37,988
  39,887
  41,881
  43,975
  46,174
  48,482
  50,907
  53,452
  56,125
  58,931
  61,877
  64,972
  68,220
  71,631
  75,212
  78,973
  82,922
  87,068
  91,421
  95,993
  100,792
  105,832
  111,123
  116,680
  122,513
  128,639
  135,071
  141,824
  148,915
  156,361
Debt-to-equity ratio
  2.102
  2.170
  2.270
  2.380
  2.470
  2.560
  2.650
  2.740
  2.810
  2.890
  2.960
  3.030
  3.100
  3.160
  3.220
  3.270
  3.330
  3.380
  3.430
  3.480
  3.520
  3.560
  3.600
  3.640
  3.680
  3.710
  3.740
  3.780
  3.810
  3.830
  3.860
Adjusted equity ratio
  0.176
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,975
  2,537
  2,652
  2,774
  2,901
  3,035
  3,175
  3,323
  3,477
  3,640
  3,811
  4,211
  4,399
  4,597
  4,804
  5,022
  5,251
  5,491
  5,743
  6,008
  6,286
  6,578
  6,884
  7,206
  7,544
  7,899
  8,271
  8,662
  9,073
  9,504
  9,957
Depreciation, amort., depletion, $m
  2,340
  2,469
  2,577
  2,691
  2,810
  2,936
  3,067
  3,206
  3,351
  3,503
  3,663
  3,528
  3,704
  3,890
  4,084
  4,288
  4,503
  4,728
  4,964
  5,212
  5,473
  5,747
  6,034
  6,336
  6,653
  6,985
  7,334
  7,701
  8,086
  8,491
  8,915
Funds from operations, $m
  3,794
  5,006
  5,230
  5,465
  5,711
  5,970
  6,243
  6,528
  6,828
  7,143
  7,474
  7,739
  8,104
  8,486
  8,888
  9,310
  9,753
  10,219
  10,707
  11,220
  11,759
  12,324
  12,918
  13,542
  14,196
  14,884
  15,606
  16,364
  17,159
  17,995
  18,872
Change in working capital, $m
  -478
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -60
  -63
  -66
  -69
  -73
  -77
  -80
  -84
  -89
  -93
  -98
  -103
  -108
  -113
  -119
Cash from operations, $m
  4,272
  5,783
  5,260
  5,496
  5,745
  6,006
  6,279
  6,567
  6,869
  7,186
  7,518
  7,786
  8,153
  8,538
  8,943
  9,367
  9,813
  10,282
  10,773
  11,290
  11,832
  12,401
  12,999
  13,626
  14,285
  14,977
  15,703
  16,466
  17,267
  18,108
  18,991
Maintenance CAPEX, $m
  0
  -2,060
  -2,166
  -2,274
  -2,388
  -2,507
  -2,633
  -2,764
  -2,903
  -3,048
  -3,200
  -3,360
  -3,528
  -3,704
  -3,890
  -4,084
  -4,288
  -4,503
  -4,728
  -4,964
  -5,212
  -5,473
  -5,747
  -6,034
  -6,336
  -6,653
  -6,985
  -7,334
  -7,701
  -8,086
  -8,491
New CAPEX, $m
  -3,699
  -1,105
  -1,126
  -1,183
  -1,242
  -1,304
  -1,369
  -1,437
  -1,509
  -1,585
  -1,664
  -1,747
  -1,835
  -1,926
  -2,023
  -2,124
  -2,230
  -2,341
  -2,458
  -2,581
  -2,710
  -2,846
  -2,988
  -3,138
  -3,295
  -3,459
  -3,632
  -3,814
  -4,005
  -4,205
  -4,415
Cash from investing activities, $m
  -3,875
  -3,165
  -3,292
  -3,457
  -3,630
  -3,811
  -4,002
  -4,201
  -4,412
  -4,633
  -4,864
  -5,107
  -5,363
  -5,630
  -5,913
  -6,208
  -6,518
  -6,844
  -7,186
  -7,545
  -7,922
  -8,319
  -8,735
  -9,172
  -9,631
  -10,112
  -10,617
  -11,148
  -11,706
  -12,291
  -12,906
Free cash flow, $m
  397
  2,619
  1,968
  2,040
  2,115
  2,194
  2,278
  2,365
  2,457
  2,553
  2,654
  2,679
  2,790
  2,907
  3,030
  3,160
  3,295
  3,438
  3,587
  3,744
  3,909
  4,082
  4,264
  4,454
  4,655
  4,865
  5,086
  5,318
  5,561
  5,817
  6,085
Issuance/(repayment) of debt, $m
  1,861
  1,475
  1,548
  1,625
  1,707
  1,792
  1,882
  1,976
  2,074
  2,178
  2,287
  2,401
  2,522
  2,648
  2,780
  2,919
  3,065
  3,218
  3,379
  3,548
  3,725
  3,912
  4,107
  4,313
  4,528
  4,755
  4,992
  5,242
  5,504
  5,779
  6,068
Issuance/(repurchase) of shares, $m
  -1,698
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  77
  1,475
  1,548
  1,625
  1,707
  1,792
  1,882
  1,976
  2,074
  2,178
  2,287
  2,401
  2,522
  2,648
  2,780
  2,919
  3,065
  3,218
  3,379
  3,548
  3,725
  3,912
  4,107
  4,313
  4,528
  4,755
  4,992
  5,242
  5,504
  5,779
  6,068
Total cash flow (excl. dividends), $m
  474
  4,093
  3,516
  3,665
  3,822
  3,986
  4,159
  4,341
  4,531
  4,731
  4,941
  5,080
  5,312
  5,555
  5,810
  6,079
  6,360
  6,656
  6,966
  7,292
  7,634
  7,993
  8,371
  8,767
  9,183
  9,620
  10,078
  10,560
  11,065
  11,596
  12,154
Retained Cash Flow (-), $m
  122
  -330
  -351
  -369
  -387
  -407
  -427
  -448
  -471
  -494
  -519
  -545
  -572
  -601
  -631
  -663
  -696
  -731
  -767
  -805
  -846
  -888
  -932
  -979
  -1,028
  -1,079
  -1,133
  -1,190
  -1,249
  -1,312
  -1,377
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  3,764
  3,164
  3,296
  3,434
  3,580
  3,732
  3,892
  4,060
  4,237
  4,422
  4,535
  4,739
  4,954
  5,179
  5,416
  5,664
  5,925
  6,199
  6,487
  6,789
  7,106
  7,438
  7,788
  8,155
  8,540
  8,945
  9,370
  9,816
  10,284
  10,776
Discount rate, %
 
  8.10
  8.51
  8.93
  9.38
  9.85
  10.34
  10.85
  11.40
  11.97
  12.57
  13.19
  13.85
  14.55
  15.27
  16.04
  16.84
  17.68
  18.57
  19.49
  20.47
  21.49
  22.57
  23.69
  24.88
  26.12
  27.43
  28.80
  30.24
  31.75
  33.34
PV of cash for distribution, $m
 
  3,482
  2,688
  2,550
  2,400
  2,238
  2,068
  1,892
  1,712
  1,532
  1,354
  1,160
  999
  848
  708
  582
  470
  372
  289
  220
  164
  119
  85
  59
  39
  26
  16
  10
  6
  3
  2
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

The Kroger Co., together with its subsidiaries, operates as a retailer in the United States. It also manufactures and processes food for sale in its supermarkets. The company operates retail food and drug stores, multi-department stores, jewelry stores, and convenience stores. Its combination food and drug stores offer natural food and organic sections, pharmacies, general merchandise, pet centers, fresh seafood, and organic produce; multi-department stores provide general merchandise items, such as apparel, home fashion and furnishings, outdoor living, electronics, automotive products, toys, and fine jewelry; and price impact warehouse stores offer grocery, and health and beauty care items, as well as meat, dairy, baked goods, and fresh produce items. The company’s marketplace stores comprise full-service grocery, pharmacy, health and beauty departments, and perishable goods, as well as general merchandise, including apparel, home goods, and toys. It operates under the banner brands, such as Kroger, Ralphs, Fred Meyer, King Soopers, etc., as well as Simple Truth and Simple Truth Organic brands. As of January 30, 2016, the company operated 2,778 retail food stores, including 1,387 fuel centers; 784 convenience stores; and 323 fine jewelry stores and an online retail store, as well as franchised 78 convenience stores. The Kroger Co. was founded in 1883 and is headquartered in Cincinnati, Ohio.

FINANCIAL RATIOS  of  Kroger (KR)

Valuation Ratios
P/E Ratio 13.9
Price to Sales 0.2
Price to Book 4.1
Price to Tangible Book
Price to Cash Flow 6.4
Price to Free Cash Flow 47.8
Growth Rates
Sales Growth Rate 5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 10.5%
Cap. Spend. - 3 Yr. Gr. Rate 9.7%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 176.5%
Total Debt to Equity 210.2%
Interest Coverage 7
Management Effectiveness
Return On Assets 6.6%
Ret/ On Assets - 3 Yr. Avg. 6.9%
Return On Total Capital 10%
Ret/ On T. Cap. - 3 Yr. Avg. 10.5%
Return On Equity 29.2%
Return On Equity - 3 Yr. Avg. 31.5%
Asset Turnover 3.3
Profitability Ratios
Gross Margin 22.4%
Gross Margin - 3 Yr. Avg. 21.9%
EBITDA Margin 5%
EBITDA Margin - 3 Yr. Avg. 4.9%
Operating Margin 3%
Oper. Margin - 3 Yr. Avg. 3%
Pre-Tax Margin 2.5%
Pre-Tax Margin - 3 Yr. Avg. 2.6%
Net Profit Margin 1.7%
Net Profit Margin - 3 Yr. Avg. 1.7%
Effective Tax Rate 32.8%
Eff/ Tax Rate - 3 Yr. Avg. 33.6%
Payout Ratio 21.7%

KR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KR stock intrinsic value calculation we used $115337 million for the last fiscal year's total revenue generated by Kroger. The default revenue input number comes from 2017 income statement of Kroger. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our KR stock valuation model: a) initial revenue growth rate of 5% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 8.1%, whose default value for KR is calculated based on our internal credit rating of Kroger, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Kroger.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of KR stock the variable cost ratio is equal to 96.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for KR stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.9% for Kroger.

Corporate tax rate of 27% is the nominal tax rate for Kroger. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the KR stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for KR are equal to 18.6%.

Life of production assets of 10.4 years is the average useful life of capital assets used in Kroger operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for KR is equal to -0.5%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $6698 million for Kroger - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 923.364 million for Kroger is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Kroger at the current share price and the inputted number of shares is $27.4 billion.


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COMPANY NEWS

▶ New rival taking on Kroger on its home turf   [Apr-27-17 03:58PM  American City Business Journals]
▶ Kroger Has No Business Buying Whole Foods   [Apr-26-17 07:40PM  Motley Fool]
▶ Kroger rival to offer home delivery in Greater Cincinnati: UPDATE   [06:50AM  American City Business Journals]
▶ Who are Whole Foods' (WFM) main competitors?   [Apr-25-17 08:31AM  Investopedia]
▶ Is it Time for Whole Foods to Sell Out?   [03:34PM  Barrons.com]
▶ Walmart is crushing Kroger and making food history   [Apr-20-17 10:16PM  Business Insider]
▶ Kroger shareholders get low-ball offer to sell stock   [04:51PM  American City Business Journals]
▶ As shoppers go digital, so does Kroger   [02:59PM  American City Business Journals]
▶ Kroger could be a logical acquirer of Whole Foods, analyst says   [02:54PM  American City Business Journals]
▶ Kroger names new diversity chief   [Apr-19-17 03:05PM  American City Business Journals]
▶ Kroger Names Angel Colón Senior Director of Diversity   [Apr-18-17 03:40PM  PR Newswire]
▶ Why Is Amazon Interested in Plug Power?   [03:32PM  Investopedia]
▶ Amazon beats Kroger to a burgeoning food segment   [01:15PM  American City Business Journals]
▶ How Whole Foods' shakeup could affect Kroger   [Apr-12-17 05:10PM  American City Business Journals]
▶ Here's where Kroger's 5 Dayton-area Marketplace projects stand   [Apr-07-17 11:20AM  American City Business Journals]
▶ 3 Bargain Stocks You Can Buy Right Now   [10:11AM  Motley Fool]
▶ Kroger Marketplace opens in major mixed-use development NE of Houston   [10:00AM  American City Business Journals]
▶ ETFs with exposure to The Kroger Co. : April 5, 2017   [Apr-05-17 05:00PM  Capital Cube]
▶ Amazon Fresh Pickup Is a Tough Sell   [Apr-03-17 04:43PM  Motley Fool]
▶ Kroger spends millions on early retirement plan   [Mar-30-17 03:33PM  at bizjournals.com]
▶ Kroger outlook is on the rise, analyst says   [Mar-27-17 05:15PM  at bizjournals.com]
▶ RBC Upgrades Kroger to Outperform   [06:58AM  at Investopedia]
▶ 3 of the Safest Stocks You Can Buy Right Now   [Mar-26-17 09:27AM  at Motley Fool]
▶ 2 Hated Dividend Stocks to Buy Now   [09:15AM  at Motley Fool]
▶ Grocery Shopping Is About To Change Dramatically   [Mar-21-17 11:30AM  at Forbes]
▶ Target brings in grocery leader from Kroger   [Mar-20-17 05:04PM  at bizjournals.com]
▶ Amazon's Latest Move in Grocery Is Nothing New   [Mar-19-17 07:31PM  at Motley Fool]
▶ Kroger analyst tells clients to sell stock   [Mar-14-17 04:05PM  at bizjournals.com]
▶ Today's Top Supply Chain and Logistics News From WSJ   [06:40AM  at The Wall Street Journal]
Stock chart of KR Financial statements of KR
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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