With the announcement that Amazon was acquiring Whole Foods this morning, Kroger and other grocers’ stock prices are being pushed down. While yesterday’s drop was probably justified, today’s may not be.

The world of grocery is changing a lot. In addition to Amazon’s entrance, European firms Aldi and Lidl are deep-pocketed, very experienced, and invading the US grocery market.

If Kroger has to maintain high investment spending, the fair value range we calculated yesterday and show on this Tear Sheet will slip further. We do not have a way of handicapping that possibility. There are also several valuation scenarios lower than the Effective Buy Price listed here, so this is listed as a “low conviction” strategy. Risk control can be effected through position sizing.

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