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Why Analysts Are Adding Albertsons To Their Shopping Lists After Grocer's IPO

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Why Analysts Are Adding Albertsons To Their Shopping Lists After Grocer's IPO

Wall Street analysts can now issue recommendations on Albertsons Companies Inc (NYSE: ACI) after the grocery store chain went public in late June. Here's what the Street is saying.

The Albertsons Analysts

RBC Capital Markets analyst Beth Reed initiated coverage of Albertsons stock with an Outperform rating and $19 price target.

Oppenheimer analyst Rupesh Parikh initiated with an Outperform  and $18 price target.

Credit Suisse analyst Judah Frommer initiated with an Outperform and $18 price target.

Deutsche Bank analyst Paul Trussell initiated with a Buy and $21 price target.

RBC: Albertsons Solid Before COVID-19

Prior to the pandemic, Albertsons offered investors a "solid transformation story" after it integrated Safeway, and had only started to invest in new operational initiatives like loyalty and e-commerce, Reed said in the initiation note.

These steps to improve its performance remain "part of the story" today and offer better upside potential versus competitors that have less room to grow, the analyst said. 

The grocery chain will benefit from more macro trends, including a long-lasting shift toward working from home; easier access to buy groceries online; the rising popularity of cooking as a hobby; and a slower macroeconomic environment, Reed said. 

In Albertsons' case, the expansion of curbside pickup could drive identical sales growth for at least two years, the analyst said.

The company plans to expand the number stores that can handle grocery pickup from around 650 today to 1,600 or more locations in two years, according to RBC. 

Oppenheimer: Albertsons A Formidable Competitor

Albertsons' nine quarters of positive growth and recent comp trends are better than its peers, Parikh wrote in the initiation note.

The grocery chain's recent momentum should help the company achieve its growth objectives, including 2.25% identical sales growth, 3% to 5% adjusted EBITDA growth and high-single digit EPS growth, the analyst said. 

Albertsons is expected to start paying investors a dividend soon, and this represents an "incremental positive to the story" in the current low interest rate environment, he said. 

Credit Suisse: 'Energized' Albertsons CEO Leading The Way

Shares of Albertsons are trading below their IPO price, and this is in part due to concerns related to the company's pension liabilities, Frommer wrote in the initiation note.

While the unionization of the supermarket sector is a long-term issue, near-term operational improvements are likely to be seen under an "energized CEO," the analyst said. 

Albertsons' ability to offer consumers a "fresh-led, full-shop" grocery experience should resonate well with new and existing clients who want to limit their total number of shopping trips, Frommer said. 

Incremental market share gains are likely to be seen over time, especially as consumers continue eating at home, the analyst said. 

Deutsche Bank on Albertsons' Margins, Bottom-Line Growth

The case for owning Albertsons' stock is based on expectations for the company to show growth in both margins and the bottom line through company-specific drivers, Trussell wrote in the initiation note.

Albertsons is able to stand out in the grocery segment against peers that are sitting back and merely benefiting from a "rising tide lifts all boats" narrative, the analyst said. 

ACI Price Action

The stock was trading 1.73% higher at $15.86 at last check Tuesday. 

Related Link: 

Jim Cramer Recommends Buying Albertsons IPO Below $25

Latest Ratings for ACI

DateFirmActionFromTo
Jul 2020MKM PartnersInitiates Coverage OnNeutral
Jul 2020OppenheimerInitiates Coverage OnOutperform
Jul 2020Deutsche BankInitiates Coverage OnBuy

View More Analyst Ratings for ACI
View the Latest Analyst Ratings

 

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StockFirmActionPT
PRPLCraig-HallumInitiates Coverage On30.0
OKEArgus ResearchDowngrades
GDArgus ResearchDowngrades
FSKJP MorganDowngrades15.0
EVRGWolfe ResearchDowngrades65.0
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