On Wednesday, Albertsons Companies Inc. (NYSE:ACI) shares experienced a significant shift as the company announced the end of its merger agreement with Kroger (NYSE:KR) and proceeded to file a lawsuit against Kroger for billions in damages.
With a current market capitalization of $10.6 billion and a defensive beta of 0.36, Albertsons remains a stable player in the consumer staples sector. According to InvestingPro data, the company maintains a GOOD financial health score, suggesting resilience amid these changes.
In response to these developments and the company's released guidance for 2024, Telsey Advisory Group has revised its outlook on Albertsons' stock.
The new guidance from Albertsons projects an adjusted EPS of $2.20-$2.30, aligning closely with the FactSet consensus of $2.27. Trading at a P/E ratio of 10.6x and offering a 2.63% dividend yield, the stock presents an interesting value proposition.
The company also forecasts ID sales growth between 1.8% and 2.2%, which is in line with the FactSet expectation of 2.0%, and anticipates an adjusted EBITDA in the range of $3.90 billion to $3.98 billion, slightly below the FactSet consensus of $3.96 billion.
Get deeper insights into Albertsons' valuation metrics and growth potential with InvestingPro, which offers exclusive analysis and 6 additional key ProTips. Telsey has adjusted its EPS estimate for Albertsons to $2.27 from the previous $2.18, with ID sales growth now anticipated at 2.1%, up from 1.8%, and a marginally increased adjusted EBITDA prediction of $3.97 billion.
Albertsons has also outlined a long-term financial strategy, aiming for ID sales growth exceeding 2% and adjusted EBITDA growth surpassing comparable growth.
The company's strategy for achieving long-term growth includes enhancing its value proposition, investing in store and technology improvements, increasing omnichannel revenues, expanding the Albertsons Media Collective, transforming its supply chain, merchandising, sourcing, and support functions, and optimizing its real estate and other assets to create value.
Despite these strategic initiatives, Telsey maintains a cautious stance due to the heightened promotional environment in the retail sector and the necessity for Albertsons to reinvest in its business after two years focused on the merger.
Telsey has consequently lowered its price target on Albertsons shares to $21 from the previous $27.25. This adjustment is based on applying a reduced EV/EBITDA multiple of 5.0x, down from approximately 6.0x, to reflect a return to normalized growth and the impending business investments, against the backdrop of their 2025 adjusted EBITDA projection of $4.1 billion. The firm's rating remains at Market Perform.
In other recent news, Albertsons Companies Inc. has terminated its merger with Kroger following court injunctions. Following the termination, Albertsons has launched a lawsuit against Kroger seeking billions in damages.
Albertsons has also announced several major updates, including a financial outlook for fiscal year 2024, medium to long-term financial goals, and an increase in its dividend to $0.15, up 12%.
In addition to these developments, Albertsons has authorized up to $2 billion in stock buybacks, which could represent nearly 20% of the company's market cap. The company's earnings per share (EPS) are expected to hit $2.20-$2.30, aligning with Evercore ISI's higher-end estimate.
Evercore ISI maintained its "In Line" rating for Albertsons, while RBC (TSX:RY) Capital Markets revised Albertsons' price target from $22.00 to $21.00, maintaining an Outperform rating on the stock. These are the recent developments in the wake of Albertsons' termination of its merger agreement with Kroger and other financial updates.
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