Kroger Co (NYSE:KR) has generally been a source of stable returns for investors.

But, of course, things have changed dramatically this year, especially with Amazon.com, Inc.’s (NASDAQ:AMZN) purchase of Whole Foods.

The result is that Wall Street has essentially thrown in the towel on KR stock, which is off about 38% this year.

Yet, AMZN is not the only issue with the company. Kroger stock price was already feeling the pressure before the deal.

After all, the grocer had been reporting weak earnings. Part of this has been from adverse commodities pricing as well as the pressures from German discount operators like Aldi and Lidl.

So, is all the bad Kroger news a sign that investors should just avoid the stock? In other words, is the company vulnerable to disruption?

Well, even though there are major challenges, I think they can be managed. In fact, KR stock has the potential of being an interesting value play right now — but investors will need some patience.

Let’s take a look at 3 bullish reasons for Kroger stock:

KR Stock Bullish Factor #1 — Scale

The roots of KR go back 1883. So, yes, the company has proven to be quite adept at dealing with the intense competitive forces and industry changes. A clear-cut example of this is how KR was able to handle the onslaught of Target Corporation (NYSE:TGT), Costco Wholesale Corporation (NASDAQ:COST) and Wal-Mart Stores Inc (NYSE:WMT) during the past 20 years or so.

There are several keys to KR’s success. First of all, the company has a strong focus on the customer, which has meant creating engaging store experiences and providing a wide assortment of offerings at competitive prices.

What’s more, KR has benefited from its massive scale. The company currently has about 2,800 stores across 35 states. Because of this, there is often a KR store at convenient distances for customers (the average is about one and half miles from the home).

KR Stock Bullish Factor #2 — Investing in Innovation

For the next few years, KR plans to invest $9 billion in digital systems. This effort is called the “Restock Kroger” platform.

At the heart of this will be a focus on mining customer data. But there will also be other initiatives like improvements to the supply chain, video analytics, robotics, self-checkout, space optimization and personalized offers.

It is also important to note that KR already has some key assets, which will serve as a foundation. For example, the company delivers over 3 billion personalized recommendations to customers every year. Moreover, there is an extensive loyalty program as well as the ClickList platform, which allows customers to make online purchases and pickups.

OK, then, but won’t the costs be prohibitive for KR? Not necessarily. The company still plans ongoing cost cutting. Part of this will come from the digital assets, but also it looks like it will sell off the convenience stores segment, which would be a nice source of cash.

KR Stock Bullish Factor #3 — Financials and Valuation

Despite all the bad Kroger news, the company’s financials are not imploding. During the latest investor conference, KR reaffirmed its fiscal 2017 outlook, with comparable-store sales increases of 0.5% to 1.0% and earnings per share of $2 to $2.05.

Besides, the valuation on the shares is definitely attractive. Consider that KR stock trades at 11 times earnings. By comparison, WMT is at 18X and COST sports a multiple of 22.5.

And, finally, KR stock has a fairly attractive yield, at about 2.5%. More importantly, the company has raised it on a consistent basis during the past ten years.

— Tom Taulli

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Source: Investor Place