Supermarket giant
Albertsons Companies, Inc. (NYSE: ACI) went public in June 2020 during the COVID-19 pandemic. Shares peaked at $16.50 on IPO day and proceeded to sell-off hitting lows of $12.91 on Sept. 18, 2020, before rebounding. Shares are still underperforming the benchmark
S&P 500 index (NYSEARCA: SPY). The Company bought back 6.8 million shares from Gabriel Assets on Sept. 12, 2020 for $12-per share as part of a court-mandated wind-down. These shares can be subtracted right out of the float as it thins out some liquidity. The Company is experiencing impressive growth during the pandemic with a 26.5% year-over-year (YoY) identical sales growth and a 276% YoY surge in digital sales for Q1 fiscal 2020. Value investors looking for a bargain entry in a
7X price-earnings (P/E) consumer staples play with a 2.80% annual dividend can watch for opportunistic pullback levels to gain exposure and entries during the downtrend.
Q1 FY 2020 Earnings Release
Albertsons reported its first earnings report as a publicly-traded company on July 27, 2020, for the quarter ending in May 2020. The Company reported an earnings-per-share (EPS) profit of $1.35 excluding non-recurring items versus consensus analyst estimates for a profit of $1.25, beating estimates by $0.10. Revenues surged 21.4% YoY to $22.75 billion beating analyst estimates for $22.60 billion. Adjusted EBITDA grew 93% YoY to $1.7 billion with identical sales growth of 26.5%. The Company attributed the surge in sales and basket size in stores to the consumer stockpiling trend spawned from the effects of COVID-19. The Company didn’t provide any forward guidance due to the lack of transparency from the pandemic.
Poor Stock Performance
Investors were weary of Albertsons IPO. While the COVID-19 pandemic made essential businesses like grocery stores beneficiaries of the stay-at-home mandates, Albertsons shares underperformed its peers from day one of its IPO. Underwriters couldn’t muster demand in the $18 to $20 price range and opted to offer 50 million shares priced at $16. The concerning aspect of this IPO was that the Company received no proceeds as all shares were from selling shareholders. This was a major turn off that gave the impression of insiders cashing out at the behest of the Company dumping shares onto the public. The net debt reduction to $6.5 billion can help improve earnings with cheaper debt financing charges but at the cost of $1.7 billion issued in convertible preferred stock. The Q1 2020 earnings release illustrated the fundamental improvements from the pandemic, but the question is whether this is just a temporary headwind or a lasting trend.
Beefing Up Assets
On Oct. 14, 2020, Albertsons announced the acquisition of 27 Kings Food Market and Balducci’s Food Lover’s Market locations with a winning bid of $96.4 million. The deal is still subject to FTC approval but will be part of the Company’s Mid-Atlantic division which also operates Safeway and ACME stores. These are high-end high-margin gourmet specialty grocers with premium products and prices. Prior to the deal, Albertsons generated 41% of sales from its “fresh” products. The acquisition should help improve that metric. Bank of America has a Buy rating on Albertsons with a $22 price target. JP Morgan has an Overweight rating with a $19 target. Shares have been able to rally after the Q1 2020 earnings release but value investors should exhibit patience and monitor opportunistic pullback levels for exposure.
ACI Opportunistic Pullback Levels
Using the rifle charts on the weekly and daily time frames provides a near-term view of this recent ACI stock. Since shares have a limited trading history, the daily rifle is the only chart with full stochastic information. However, the weekly rifle chart was able to form a market structure low (MSL) buy trigger at $14.27 just above the $14.18 Fibonacci (fib) level. The daily stochastic completed a full oscillation through the 80-band to peak out at the $14.81 fib as it starts to cross the 80-band back down. This daily stochastic oscillation down can provide opportunistic pullback levels at the $14.18 fib, $13.72 fib, $13.13 fib and the $12.38 fib. It’s prudent to wait for Q3 2020 earnings reaction smoke to clear before taking positions. Traders can get a better read on KR price action by following competitors Kroger (NYSE: KR) and Weis Markets (NYSE: WMK) as lead indicators.
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