On Tuesday, RBC Capital adjusted its financial outlook for Albertsons (NYSE:ACI) Companies Inc. (NYSE: ACI) shares, increasing the supermarket chain's price target from $22.00 to $23.00 while maintaining an Outperform rating. The revision follows Albertsons' performance, which revealed a robust top-line and better-than-expected earnings flow-through.
The analyst from RBC Capital highlighted that Albertsons' results exceeded their projections, prompting an uplift in the second-quarter identical sales (ID sales) estimate to 1.3%, a slight increase from the previous 0.8%. The adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) forecast for the quarter also saw a bump to $900 million from the earlier estimate of $862 million.
Despite the positive adjustment for the current quarter, RBC Capital has adopted a cautious stance for the second half of the year. The analyst noted that Albertsons will be facing challenges from cycling past productivity gains and an expected rise in promotional activities.
Consequently, the firm's projections for fiscal years 2024 and 2025 reflect this conservative outlook, with ID sales anticipated to grow by 1.2% and 1.0%, respectively, which are modest adjustments from previous estimates.
The adjusted EBITDA forecasts for FY'24 and FY'25 have been set at $3.93 billion and $3.96 billion, respectively. These figures are slightly lower than the previous forecasts of $3.99 billion and $4.11 billion.
RBC Capital's revised price target is based on a probability-weighted analysis that considers different scenarios regarding a potential acquisition deal involving Albertsons. The firm assigns a 65% likelihood that the deal may not proceed, valuing the fundamental worth of Albertsons' shares at $21, based on approximately 5 times the revised adjusted EBITDA estimate for 2025, excluding a $600 million breakup fee.
In the event the deal does not close, the analyst suggests a downside scenario where the stock could temporarily drop to $17, or $18 including the breakup fee. Conversely, if the acquisition is finalized, the price could reach $27.25, which is the purchase price of $34.10 minus the $6.85 special dividend.
In other recent news, Albertsons Companies Inc. has seen varied responses from analyst firms. Roth/MKM upgraded Albertsons from Neutral to Buy, setting a new price target of $24.00, based on the company's new divestiture package that includes 166 additional stores. This shift is expected to increase the likelihood of the pending deal's approval and enhance competition.
On the other hand, RBC Capital maintained an Outperform rating on Albertsons but reduced its price target to $22 from $23. This adjustment comes from a projected modest increase in same-store sales for 2024 and a revised 2024 adjusted EBITDA forecast for Albertsons to $4.0 billion.
Furthermore, Evercore ISI maintained its "In Line" rating and $22.00 price target for Albertsons. The firm noted the company's ongoing efforts to enhance its customer retention strategies, growth in its pharmacy sector and loyal customer base, and the potential impact of Kroger (NYSE:KR)'s divestiture plans on Albertsons' court proceedings.
These are recent developments that reflect the changing dynamics and expectations for Albertsons. The various analyses from Roth/MKM, RBC Capital, and Evercore ISI highlight the evolving circumstances surrounding the company's operations and future prospects.
InvestingPro Insights
As RBC Capital revises its financial outlook for Albertsons Companies Inc. (NYSE: ACI), real-time metrics from InvestingPro provide additional insights into the company's valuation and performance. With a market capitalization of $11.65 billion and a P/E ratio of 8.94, Albertsons presents itself as a company trading at a low earnings multiple, which aligns with the positive sentiment from RBC Capital. The company's P/E Ratio has adjusted to an even more attractive 7.69 over the last twelve months as of Q4 2024, suggesting a potential undervaluation of the stock.
InvestingPro Tips highlight Albertsons as a prominent player in the Consumer Staples Distribution & Retail industry, with a stock that generally trades with low price volatility. This stability, paired with the fact that Albertsons is trading at a low revenue valuation multiple, could offer reassurance to investors looking for steady performers in turbulent markets. Moreover, analysts predict the company will be profitable this year, which is supported by a positive earnings per share (EPS) of $2.23 over the last twelve months.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips on Albertsons, providing a deeper dive into the company's financial health and market positioning. Use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, and discover the full range of insights, including 6 more tips on Albertsons, available at InvestingPro.
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