Research firm Melius has upgraded Albertsons (NYSE:ACI) Companies Inc. (NYSE: ACI) from Hold to Buy, setting a price target of $24.00.
The firm's analyst outlined several potential outcomes for Albertsons, indicating a positive view of the company's valuation and management despite the uncertainty surrounding a proposed merger.
The analyst from Melius provided insights into the rationale behind the upgrade. They suggested that there are multiple ways for Albertsons to succeed with limited downside risk. Even though the analyst expressed skepticism about the completion of Albertsons' merger, they noted that if the merger were to proceed, shareholders could see a 43% upside, with a potential payout of $27.25 per share.
In the absence of a merger, Melius employed three different valuation approaches to justify the $24.00 price target. The first approach is based on Albertsons' historical trading at 4.5 times the next twelve months' (NTM) EBITDA, which, when applied to the firm's 2026 estimates, suggests a $24.00 per share valuation.
The second approach involved a liquidation analysis of Albertsons' real estate, which indicated a valuation of $18.00 per share. The analyst highlighted that this figure might undervalue certain aspects of the company's assets.
The third valuation method used was a sum of the parts analysis, which corroborated the $24.00 per share valuation derived from historical analysis. The analyst emphasized the market's current undervaluation of Albertsons, especially given the strength of its management team, which is expected to communicate more effectively with investors in the future.
In other recent news, Albertsons reported a year-over-year decline of 18% in its second quarter fiscal year 2025 earnings, despite surpassing earnings per share forecasts. The grocery chain's identical sales exceeded expectations due to an increase in pharmacy sales, but BMO Capital indicates potential ongoing losses in grocery market share. Albertsons also declared a quarterly cash dividend of $0.12 per share of common stock.
In parallel, Albertsons and Kroger (NYSE:KR) Co. have been progressing towards a proposed merger, although the deal is facing resistance from the U.S. Federal Trade Commission and several states due to concerns about potential price hikes and weakening of unionized employees' bargaining power. Kroger has extended the expiration dates for its exchange offers and consent solicitations related to Albertsons' notes, with consents surpassing the required threshold.
InvestingPro Insights
To complement Melius' bullish outlook on Albertsons Companies Inc. (NYSE:ACI), recent data from InvestingPro provides additional context for investors. As of the latest available information, Albertsons boasts a market capitalization of $11.01 billion and a P/E ratio of 10.98, suggesting the stock may be undervalued relative to its earnings. This aligns with one of the InvestingPro Tips, which notes that ACI is "Trading at a low earnings multiple."
The company's revenue for the last twelve months stood at an impressive $79.71 billion, with a modest growth of 1.21%. While this growth is not explosive, it demonstrates stability in a competitive retail environment. Albertsons' gross profit margin of 28.42% indicates a solid ability to manage costs in the low-margin grocery sector.
InvestingPro Tips also highlight that Albertsons is a "Prominent player in the Consumer Staples Distribution & Retail industry" and has been "Profitable over the last twelve months." These factors support Melius' positive view on the company's management and market position.
For investors seeking more comprehensive analysis, InvestingPro offers 7 additional tips for Albertsons, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.