Strategic Review To Unlock Albertsons Companies, Inc Value
Shares of Albertsons Companies, Inc (NYSE: ACI) are trading near their 2-year highs on what could be an acceleration of strategic improvement made over that time period. The company has been working on growth and profitability and is now entering a strategic review that could unlock shareholder value. The review was announced by the board and will include a look at the balance sheet for opportunities for capital returns or possible financial transactions as well as the creation of new initiatives to enhance the work already accomplished. The review will also include responding to any inquiries that may arise. The takeaway for us is the stock trades at only 12X its earnings compared to competitor Kroger which trades at 16X its earnings. That’s a difference in valuation that could mean as much as 33% of upside for Albertson's investors.
"The board believes the continuing strength of our business and the scale of our portfolio of assets warrants a deep and considered review of all possible paths towards maximizing value creation,” said Chan Galbato, co-chair of the board.
And the analysts have taken notice. The analysts were bullish on the stock before the review was announced and have been supporting share prices and that trend looks like it will continue. There have been two analysts out with commentary since the announcement and both raised their price targets. The new price targets are $42 and $37 for a consensus of $39.5 compared to the broader Pricetarget.com consensus of $30.30. The $30.30 target assumes about 15% of downside for the stock compared to about 12% of upside for the $39.50 target. The broad consensus is trending higher in the 12-month, 3-month, and 1-month comparisons despite lagging the market and we see it moving higher in the wake of earnings.
Albertsons Companies, Inc. Is Set To Report Earnings
The biggest risk for the Albertsons Companies, Inc. market right now is earnings. The company is slated to report on 4/12/22 and could easily outperform the expectations. The company is expected to report $16.48 billion in net revenue for a sequential decline and YOY gain of 7.8%. Because consumer trends remain strong in the food-at-home category and prices are on the rise we see both top and bottom-line results coming in ahead of the consensus and driving another round of upgrades and price target increases. As it is now, the consensus rating on Albertsons is a firm Hold leaning toward Buy.
The institutions have been buying the stock as well although their support waned in Q1. Over the past 4 quarters, the institutions have been net buyers in the amount of $0.757 billion or about 4.3% of the market cap and this trend will likely continue, assuming the results continue to show improvements.
The Technical Outlook: Albertsons Struggles With Resistance
Shares of Albertsons have been edging higher over the past few weeks, trading within the recent range, and are now facing resistance at the $36 level. This is just below the recent all-time high and may cap gains in the near-term. Assuming the earnings report is as we expect, we would then expect to see Albertsons’ stock move above this resistance point and challenge the all-time high. If not, price action may pull back from the $36 level and continue moving sideways over the next few months.
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