Kroger Gets Big Investment from Warren Buffett

When Warren Buffett makes an investment, Wall Street pays close attention. The investor, better known as the “Oracle of Omaha” has made a huge investment into a supermarket stock. That stock is Kroger.

It was revealed last Friday that Buffett’s Berkshire Hathaway has made an acquisition of a nearly $550 million stake in The Kroger Co.

On Feb. 14, Berkshire had filed a 13F form with the Securities and Exchange Commission reporting the purchase of more than 18.9 million shares in Kroger for $549.1 million.

“Obviously, it’s a big vote of confidence in Kroger, the management team and its strategy,” said analyst Rupesh Parikh of Oppenheimer & Co.

Parikh added, “We don’t know if it’s Warren Buffett or some of the other portfolio managers that made this investment. But it’s a clear positive to have Warren Buffett involved, and it definitely helps the stock from a support perspective.”

Jefferies analyst Christopher Mandeville remarked, “We hate to be on the opposite side of a debate with Berkshire Hathaway, but that’s where we find ourselves as the company has taken a 2.4% Kroger stake. While advantaged versus many, we fail to see Kroger’s long-term appeal, as it’s losing share to most scaled peers, its online fulfillment/pricing strategy concerns us and ROIC [return on invested capital] continues to deteriorate. That said, with Omaha in its corner and recent media coverage of Amazon’s new grocery concept proving unexciting, near-term sentiment clearly improves.”

“Moreover, food for thought: If Mr. Buffett had truly appreciated the [Kroger] business model, why didn’t he simply use a fraction of Berkshire Hathaway’s mountainous $128 billion cash pile to buy the company outright?” Mandeville asked.

Disclaimer: We have no position in Kroger Co. (NYSE: KR) and have not been compensated for this article.