Kroger Stock Falls On Wells Fargo Downgrade

• Wells Fargo analyst Edward Kelly downgraded Kroger Co (NYSE:KR) to Underweight from Equal Weight with a $42 price target, implying a 9% downside.
• The analyst notes the risk/reward for this COVID beneficiary now looks skewed to the downside.
• While he expects Q4 earnings to exceed consensus once again as Omicron extends what has arguably been the best backdrop for grocers in history, he adds that it simply can't last.
• Unionized grocery is likely to remain a very tough business long after the benefits of COVID end. Kelly expects top-line momentum to stall on the combination of Omicron re-open and the end of the stimulus.
• Kelly sees brewing risk in the set-up for product inflation, labor cost pressure looks to be increasing at an inopportune time, and management seems poised to set the bar high for 2022.
• Price Action: KR shares traded lower by 3.44% at $46.08 on the last check Tuesday.