Kroger's (KR) "bull case" for a meaningful sales acceleration is being pushed out, mainly because 2026 identical-store sales are now expected to slow due to a "pharmacy headwind" from Medicare drug price changes, Morgan Stanley said in a report Monday.
The investment bank expects 2026 identical-store sales to slow to about 2%, reflecting a roughly 90-to-120-basis-point headwind tied to Medicare drug-price reductions taking effect under the Inflation Reduction Act, the report said.
While underlying trends remain stable and risk-reward tilts positive, the firm said the "GLP-1 pricing" impact and a more challenging consumer backdrop may reduce the likelihood of identical-store sales surpassing 4% in the near term.
Kroger "continues to lose market share," but the pace of decline is easing quarter by quarter. The company is seeing growth in fewer than one-third of its 22 regions, mostly in areas where it has invested in stores. Kroger's management views building a larger base of "loyal households" as a long-term focus and remains optimistic it can draw new customers through store expansion and third-party e-commerce partnerships, the report said.
Morgan Stanley also highlighted the potential implications of Kroger's expected chief executive transition in early 2026, calling it both a "risk and opportunity," and a possible catalyst depending on investor reception.
Morgan Stanley has an equal-weight rating on Kroger and lowered its price target to $72 from $76.
Shares of the company were up more than n2% in recent Monday trading.
Price: 64.00, Change: +1.29, Percent Change: +2.05
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