Citigroup recommends buying Wal-Mart, Kroger, cites strong pricing message

Δημοσιεύθηκε: 25 Μαρτίου 2008 - 18:09

NEW YORK (Thomson Financial) - A Citigroup analyst Tuesday recommended investors buy shares of Wal-Mart Stores Inc. and Kroger Co., noting that the two retailers will benefit in the current challenging economic environment as consumers become more value conscious.

In a note to clients, Deborah Weinswig said an 'overwhelming' 72% of customers who participated in a Citigroup proprietary survey said that Wal-Mart had the lowest prices.

Among the top three traditional supermarkets, Kroger was perceived by

more consumers to be the lowest priced.

'Going forward, we believe that consumers could further cut spending,' Weinswig said. 'In this environment, Wal-Mart and Kroger are best positioned to gain share as a result of their strong pricing message.'

When asked which food retailer was the most expensive, 26.5% of consumers found Safeway Inc. to be the most expensive, while 24.5% of consumers found Supervalu Inc. to have the highest prices.

Citigroup rated Kroger buy with a $33 price target. It also has a buy rating on shares of Wal-Mart with a price target of $57.

U.S. consumer confidence dropped sharply to its lowest point in five years in March, the New York-based conference board said Tuesday. Consumers' outlook for the next six months hit a low not seen in 35 years.

The preliminary Consumer Confidence Index for March fell about 12 points to 64.5, from an upwardly revised 76.4 in February. Analysts polled by Thomson's IFR Markets were expecting a more modest decline to 73.0.

Economists warned today that the new March number is dangerously low, and is a strong indication that the U.S. economy is at or near a recession.

Ian Shepherdson, chief US economist at High Frequency Economics, said that if the consumer confidence reading were to hold at this level, it would mean a drop in consumer spending of about 2% year-over-year, a pace not seen since 1974.

Wal-Mart has already begun to see benefit from its price leadership. Shares of the world's largest retailer and Dow industrials component rallied to its highest level in three years Monday and have been up nearly 12% since the beginning of the year.

On Mar. 6, Wal-Mart reported better-than-expected same-store sales, getting a lift from continued strength in the grocery, health and wellness and entertainment business segments along with relative improvement in sales trends for apparel.

'With consumers increasingly concerned about their personal financial status

and a higher cost of living, we will continue our commitment to price leadership

across all categories,' said Tom Schoewe, the company's chief financial officer.

Wal-Mart's stock fell slightly to $53.08 Tuesday, down 1%.

Kroger gained 17 cents to $25.41 in recent trading, but was down 4.8% on the year.

Wanfeng Zhou

wz/vj

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