Lehman Downgrades Kroger to 'Equal-Weight'

Analyst Meredith Adler thinks earnings for most supermarkets will remain pressured for years

Lehman Brothers downgraded Kroger (KR ) to equal-weight from overweight.

Analyst Meredith Adler says despite a steady improvement in the economy recently, she now believes earnings for most supermarkets will remain pressured for years. She says this is a result of continued expansion by alternative channels, a painfully slow rationalization leading to tough conventional competition, and relentlessly rising operating costs.

Adler cut the target to $16.50. She cut the $1.34 fiscal 2006 (Jan) earnings per share estimate to $1.26. Adler says Kroger remains the best-positioned chain, but it needs to make a multi-year price investment as expenses keep rising, which creates a poor earnings per share outlook.

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