Tuesday, Roth/MKM changed its stance on Albertsons (NYSE:ACI) Companies Inc. (NYSE: ACI) stock, upgrading from Neutral to Buy, with a new price target set at $24.00. The shift in rating comes as the analyst firm sees improved prospects for the company's pending deal, given a new divestiture package that includes 166 additional stores. This move is expected to enhance competition and increase the likelihood of the deal's approval.
The analyst noted that the new divestiture package reduces the risk associated with re-branding and provides better access to private labels, which in turn strengthens the competitiveness of C&S as a potential market player.
Due to these changes, the firm has raised the probability of the deal's approval from 20% to 50%. The anticipation is that as the deal probability increases and fundamental market headwinds subside throughout the fiscal year 2024, Albertsons' share price will edge closer to the deal price of $27.25.
The valuation of Albertsons on a standalone basis is estimated to be around $19, which corresponds to 6 times the enterprise value to next twelve months adjusted EBITDA. Factoring in a 50% chance of deal approval, the firm sees potential for the stock price to rise to the $24 target.
The upgrade to Buy reflects the analyst's view that there is an opportunity for investors until the gap between the current stock price and the deal price narrows or unless there is a shift in the fundamental outlook for the company.
The upgrade suggests a positive turn for Albertsons as it navigates through the fiscal year, with expectations of dissipating headwinds and an increased chance of deal completion. The new target price of $24.00 represents the analyst's revised expectation of the company's value in light of these developments.
InvestingPro Insights
Albertsons Companies Inc. (NYSE: ACI) has been the subject of renewed interest following an analyst upgrade, and a deeper look into the company's financials through InvestingPro reveals several metrics that could be pertinent to investors. With a market capitalization of $11.68 billion and a very attractive adjusted price-to-earnings (P/E) ratio of 7.83 as of the last twelve months leading up to Q3 2024, ACI is trading at a low earnings multiple, which may interest value-oriented investors. The company's revenue growth in Q3 2024 stood at 2.22% quarterly, indicating steady business expansion.
From an investment standpoint, Albertsons shows a solid gross profit margin of 28.32%, which underscores its ability to maintain profitability. Moreover, the company has been profitable over the last twelve months, which aligns with analysts' predictions that it will continue to be profitable this year. A noteworthy InvestingPro Tip is ACI's low price volatility, which could appeal to investors who prioritize stability in their portfolio.
For those considering adding ACI to their investment mix, there are additional InvestingPro Tips available, including insights on the company's status as a prominent player in the Consumer Staples Distribution & Retail industry and its trading near a 52-week low, which could represent a potential entry point. To access these tips and more, visit https://www.investing.com/pro/ACI and remember to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 6 more InvestingPro Tips available for ACI, offering a comprehensive view of the company's financial health and market position.
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