Shares of The Kroger Company (KR) rose nearly 6% during after-hours trading on Friday after Warren Buffett's Berkshire Hathaway Inc. (BRK.A) disclosed that it purchased about 19 million shares worth over a half billion dollars – representing about 2.3% of outstanding shares. While the billionaire investor hasn't offered any commentary, his successful track record is a draw to many investors and could boost the stock price.
The move comes as Kroger's management team has faced criticism over its underwhelming three-year plan introduced two years ago. Despite easy comps and a favorable pricing environment, the company failed to deliver strong margins during the third quarter, and some analysts are starting to question management's ability to execute. The involvement of Berkshire Hathaway could help alleviate some of these fears.
With a valuation of more than $1 billion, Kroger is one of three publicly traded grocery chains alongside Sprouts Farmers Markets, Inc. (SFM) and Weis Markets, Inc. (WMK). Albertsons is reportedly considering an initial public offering that could result in a $19 billion valuation, according to The Wall Street Journal, which could create a third publicly traded competitor.
From a technical standpoint, Kroger stock is poised to rebound from its 50-day moving average at $28.11 to retest its reaction highs of around $29.00 over the coming sessions. The relative strength index (RSI) remains neutral with a reading of 53.66, while the moving average convergence divergence (MACD) experienced a modest upswing this month. These indicators suggest that the stock could have room to run.
Traders should watch for a breakout from reaction highs of $29.00 toward trendline resistance at around $30.00. If the stock moves lower, traders could see a move toward trendline support or reaction lows of around $27.00, although that scenario seems less likely to occur given the bullish Berkshire Hathaway news over the extended weekend. The company's next earnings release is slated for March 5, 2020.
The author holds no position in the stock(s) mentioned except through passively managed index funds.