Barclays Capital have downgraded its ratings on the shares of US grocery retailers Safeway Inc and Kroger.

An analyst note sent out today (3 December) said BarCap was lowering its 2010 and 2011 earnings per share estimates for Kroger and reducing the rating on the shares from “overweight” to “equal weight”.

BarCap set a share-price target of $21, which assumes a multiple of 11.4x against its prior multiple of 11.7x.

The analyst note also said that BarCap is cutting its 2010 and 2011 estimates for Safeway and moving its rating from “equal weight” to “underweight”. BarCap has set a share-price target for Safeway of $19 price target.

The note said that BarCap believes Safeway is “fundamentally less well-positioned” than Kroger despite what the analysts said were Safeway’s “relatively protected markets”. The note added: “In our view, [Safeway’s shares] deserve a lower multiple than previously (11.0x vs. prior 11.2x).”

The group downgraded Kroger’s stock on the back of comments made during its third-quarter earnings call. Kroger said economic conditions for the majority of consumers had not improved and had kept the competitive environment very “hot”.

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“Without a meaningful improvement in employment, we do not think 2011 will be much better. There could be modest inflation in packaged goods, but we doubt it will be enough to boost the bottom line,” the BarCap note said.

BarCap said that Safeway’s position is slightly different to that of Kroger in that there is no significant competition in its most significant market, Northern California. However, the firm reduced its rating on Safeway as it has “not improved customers’ perception of its pricing in any meaningful way”. Which, it said, makes it “vulnerable to competitive actions by Kroger or even Target”.