| BUSINESSWEEK ONLINE : JUNE 28, 1999 ISSUE | ||||||||
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| BUSINESSWEEK INVESTOR -- INSIDE WALL STREET
Kmart: A Food Chain? Attention Kmart shoppers: You may soon be picking up fresh fruit on your way out. Adding such items could be the next move for the retailer in the wake of Wal-Mart Stores' foray into supermarkets. On June 14, Wal-Mart agreed to buy British grocery chain Asda Group for $10.8 billion in cash. Indeed, so strong is the trend toward consolidation that rumors are swirling that Kmart (KM), which operates more than 2,000 stores, is being eyeballed by some big grocers, notably Safeway and Kroger, which are bracing for competition from Wal-Mart. Kroger recently acquired retailer Fred Meyer, so it may not have much appetite for another big gulp. But Safeway, with 1,500 stores in the U.S. and Canada, is said to be on the prowl and to have Kmart on its shopping list. A New York money manager accumulating shares figures that Kmart, now at 15, could fetch 30 in a buyout. He thinks that Kmart CEO Floyd Hall, who took over in 1995, ''wants very much to please shareholders with a buyout deal'' to lift the soggy stock. So far this year, Kmart stock is off 2.5% and is down from its 52-week high of 20 13/16. Kmart trades at just 12 times estimated fiscal 2000 earnings of $1.22 a share, notes Lauren McMahon of Forstmann-Leff International, which owns a 2% stake. She thinks Kmart will earn $1.40 in fiscal 2001. The stock deserves a price-earnings ratio of 18--or a price of 22 a share, she says. Also bullish on Kmart is Merrill Lynch's Daniel Barry, who thinks it's worth 28, based on Kmart's turnaround, because ''virtually all its stores are being converted to Big K's'' [supercenter stores]. Moreover, says Barry, ''a partnership with a supermarket chain continues to be a possibility.'' Kmart spokesman Robert Burton declined comment, as did Safeway. BY GENE G. MARCIAL _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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