An unwinding of pessimism could help KR bounce back
One of the more unheralded earnings reports this morning has come from Kroger Co (NYSE:KR). The Midwest grocery chain reported adjusted second-quarter earnings of 73 cents per share on $30.5 billion in revenue, both of which topped analyst estimates. Thanks to a greater online presence, Kroger's same-store sales growth forecast was upped for 2020 as well, while the company also announced a new $1 billion share buyback program.
Despite the upbeat report, Kroger stock is down 1.4% to trade at $34.24 out of the gate, on track for a four-day losing streak. Nevertheless, KR remains up 17.3% in 2020, and has carved out a channel of higher highs all year, with its ascending 80-day moving average containing all major pullbacks, including today's.
A shift in analyst attention could help the equity toward its Sept. 3 four-year high of $37.22. Of the 15 brokerages in coverage, 10 dole out "hold" or "strong sell" ratings. Plus, the consensus 12-month price target of $36.34 is a slim 4.6% premium to last night's closing perch of $34.74.
A short squeeze could also fuel additional gains. Short interest grew by only 3% in the most recent reporting period, and the 59.04 million shares sold short accounts for almost 8% of KR's total available float. At the stock's average pace of trading, it would take over six days for shorts to buy back their bearish bets.
Options traders are getting in on the fun today. In just the first half hour of trading, over 11,000 options have changed hands, four times the average intraday amount and volume pacing for the 99th percentile of its annual range. The October 40 call is getting most of the attention today, but there are also new positions being opened at the September 33.50 call.