Albertsons' Valuation Depends On Its Potential Merger With Kroger, Says Analyst

Telsey Advisory Group analyst Joseph Feldman reiterated a Market Perform rating on the shares of Albertsons Companies, Inc. ACI with an unchanged price target of $27.25.

Albertsons will report second-quarter FY23 earnings on Tuesday, October 17.

The analyst maintained inline 2Q23 sales and profit projections, given healthy at-home consumption, moderating inflation, and gains from company-specific initiatives, including private brands and digital.

The analyst lowered 2H23 estimates, given slower consumer spending trends, faster-than-anticipated disinflation, and recent comments from competitors, such as Kroger Company KR, Costco Wholesale Corporation COST, and Walmart Inc WMT.

U.S. Retail Sales of Food & Beverages (not adjusted) were +2.8% in August, +1.3% in July, and +1.4% in June. Food-At-Home CPI was +3.0% in August, +3.6% in July, and +4.7% in June.

Walmart has been vocal about the increased usage of weight-loss drugs, like Ozempic and Wegovy, causing consumers to slightly pull back on units and the size of their basket, noted the analyst.

Also Read: Weight-Loss Drug Boom Has Another Ripple Effect - Rapid Growth Expected In Fill-Finish Market

Costco, commented that inflation moderated as 4QF23 progressed, with inflation in Food & Sundries up slightly, Fresh Food essentially flattish, and Non-Foods down, primarily due to lower freight and select commodities, such as steel, noted the analyst.

The analyst believes near-term trends are likely to soften, due to macro issues and should be partly offset by the structural shift in consumer shopping behavior toward digital and increased at-home consumption.

The analyst continues to believe Albertsons' valuation is fixed for now, and dependent on its potential merger with Kroger.

The analyst is supportive of Kroger's acquisition of Albertsons but notes uncertainty related to government approvals and other merger-related factors.

Price Action: ACI shares are trading lower by 0.04% at $22.99 on the last check Tuesday.