Shoe carnival Nasdaq:SCVLMondelez Nasdaq:MDLZAnd Kroger New York Stock Exchange: K.RIt announced large buybacks in December which should help support price action over time. Today’s question is whether these stocks will be rated as buy, sell or hold for 2025, and the answer is buy, if for different reasons with each stock. Here’s a look at why investors should care about it.
Shoe Carnival: Undervalued penny stocks with strong earnings
Shoe carnival today
(As of 05:23 PM ET)
- 52 week range
- $24.94
▼
$46.92
- Dividend yield
- 1.48%
- P/E ratio
- 13.38
- Price target
- $42.00
Like all retailers, Shoe Carnival faces headwinds in 2024, but it still delivers reasonably stable results and enough cash flow to maintain capital return expectations. This includes up to $50 million in stock buybacks, about 5% of market cap, but that’s not why you should buy this stock. The Company’s repurchases are in support of stock-based compensation and cannot be relied upon as capital returns. Highlights in 2024 include no repurchases, a moderately higher share count, and significantly improved shareholder value associated with operations and acquisitions. It’s a buy because of its balance sheet and earnings.
The company’s operations and balance sheet allow for acquisitions such as Rogan’s, which added 28 stores, or about 7%, to the company’s footprint. At the end of the third fiscal quarter, balance sheet highlights included increases in cash, current assets and total assets partially offset by increased liabilities. The net result was an 11% increase in equity and total leverage of less than 0.8 times equity. The cash flow and balance sheet also allow for a healthy and reliable dividend yield of 1.6% in yield with shares approaching $34.25. Dividends are less than 20% of earnings expectations, and the distribution is growing. The company has grown for 12 straight years and is on track for another double-digit increase in early 2025.
Mondelez allows $9 billion buyback: Number of shares is declining
Mondelez International Today
Mondelez International
(As of 05:36 PM ET)
- 52 week range
- $58.90
▼
$77.20
- Dividend yield
- 3.14%
- P/E ratio
- 21.22
- Price target
- $79.07
Mondelez’s $9 billion buyback authorization is a meal for investors. This stock is a buy on dividends and buybacks, reducing the number by 1.9% year-over-year for the third quarter and by 1.7% year-to-date. The new mandate replaces the old one and is enough to keep the company buying shares at the current pace for several quarters. Return on capital, including dividends, is $2.9 billion for the first nine months of the year and will exceed $3 billion by the end of the year.
The profits are attractive. The stock has a yield of more than 3%, and trades at 17x, which is more than double the broad market average value and high-yielding value compared to its peers. The company is also growing its distribution at a double-digit rate, which it can maintain due to underlying growth and a declining share count. In terms of the balance sheet, the company uses debt to improve cash flow, but it is well managed at only 0.6 times equity, putting it in a healthy position.
Analysts agree that this stock is valuable. The consensus estimate has fallen modestly since earlier in the year but is relatively flat compared to last year and early 2024, suggesting a 30% discount with the stock trading near $59.50.
Kroger buys stock again! The Albertsons merger was cancelled
Kroger today
(As of 05:36 PM ET)
- 52 week range
- $44.48
▼
$63.59
- Dividend yield
- 2.04%
- P/E ratio
- 16.60
- Price target
- $65.79
Kroger was unable to purchase Albertsons New York Stock Exchange: ACIBut it doesn’t matter. The company’s financial position was strong and only strengthened as the operation extended. The end result is that Kroger has built up an incredible cash position in preparation for the acquisition and is now using the cash to buy back stock.
The company agreed to a $7.5 billion buyback plan, worth about 17% of market cap, with $5.5 set aside for an accelerated buyout that was completed in mid-December. The remainder is worth a mid-single digit amount and will likely be implemented in 2025 in cash on hand and then topped up later.
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