On Friday, Citi resumed coverage on Albertsons Companies Inc. (NYSE: NYSE:ACI), issuing a Buy rating with a price target of $26.00. The move comes after a hiatus due to regulatory restrictions linked to a now-blocked merger attempt with Kroger Co . (NYSE: NYSE:KR). According to InvestingPro data, analysts' price targets for Albertsons range from $19 to $27, with the company maintaining a market capitalization of $11.46 billion.
Albertsons, which has seen a decline in market share over recent years amid a tough retail environment, is currently trading at what Citi considers a historically low valuation. The stock's present valuation is approximately 9 times its forecasted fiscal 2025 earnings per share (F25E P/E) and about 4.5 times its forecasted fiscal 2025 enterprise value to earnings before interest, taxes, depreciation, and amortization (F25E EV/EBITDA). InvestingPro analysis indicates the company is currently trading below its Fair Value, with current P/E ratio at 11.02x and EV/EBITDA at 6.62x.
This valuation is notably lower compared to its historical average—excluding the merger period—of 10.3 times P/E and 5.2 times EV/EBITDA. Additionally, when compared to its peers, Albertsons is trading at roughly a 30% discount on a P/E basis and a 36% discount on an EV/EBITDA basis. As a prominent player in the Consumer Staples Distribution & Retail industry, Albertsons generated impressive revenues of $79.93 billion in the last twelve months. Get deeper insights into Albertsons' valuation metrics and industry comparison with a comprehensive Pro Research Report, available exclusively on InvestingPro.
The optimism from Citi stems from Albertsons' potential to improve sales and profitability through self-help initiatives that management is now free to pursue after the halted merger. These initiatives are expected to unlock significant upside potential for the company.
Citi's analysis suggests that the risk/reward profile for Albertsons is favorable at the current stock price levels. According to the firm, there is limited downside risk, but there is a considerable opportunity for upside gains as the company embarks on its post-merger strategies.
In other recent news, Albertsons has seen a series of significant developments. The grocery chain's proposed merger with Kroger was halted, leading to a lawsuit against Kroger seeking billions in damages. Albertsons also reportedly plans to lay off its corporate and divisional support staff.
On the financial front, the company provided an outlook for fiscal year 2024, projecting an adjusted EPS of $2.20-$2.30, ID sales growth between 1.8% and 2.2%, and an adjusted EBITDA in the range of $3.90 billion to $3.98 billion. Albertsons also increased its dividend to $0.15, up 12%, and authorized up to $2 billion in stock buybacks.
Analysts have been adjusting their views on Albertsons in light of these recent developments. RBC Capital Markets upgraded Albertsons' price target to $22 from the previous $21 while maintaining an Outperform rating. Telsey Advisory Group upgraded Albertsons to Outperform and raised its price target to $26. However, Telsey later lowered its price target on Albertsons shares to $21 from the previous $27.25. Evercore ISI maintained its "In Line" rating for Albertsons, and RBC Capital Markets revised Albertsons' price target from $22.00 to $21.00.
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