On Wednesday, Evercore ISI maintained its "In Line" rating and a $19.00 price target for Albertsons Companies Inc. (NYSE: NYSE:ACI) shares following the termination of its merger agreement with Kroger. The firm highlighted Albertsons' addition to their TAP Outperform list, citing the company's focus on shareholder value and potential stock catch-up as key factors.
Trading at an attractive P/E ratio of 10.76 and with analyst targets ranging up to $27.25, the stock shows potential upside according to InvestingPro data. This move comes as Albertsons announced several major updates, including a financial outlook for fiscal year 2024, medium to long-term financial goals, and a lawsuit against Kroger for willful breach of contract.
With an InvestingPro Financial Health Score rated as GOOD, Albertsons' strategy, named "customers for life," aims to enhance customer value, invest in stores and associates, accelerate omnichannel revenue, and transform the supply chain. The company also plans to optimize its real estate assets, which have been valued at $13.5-14 billion compared to the current market cap of $10.78 billion.
The grocery chain expects identical sales growth of over 2% over time, with adjusted EBITDA growth to exceed the current $3.86 billion and capital expenditures of $1.7-$1.9 billion. Unlock deeper insights into Albertsons' financial health with InvestingPro's comprehensive research report, part of our coverage of 1,400+ US stocks.
In the near term, Albertsons anticipates identical sales to range from 1.8-2.2%, with EBITDA projected between $3.9 billion and $3.98 billion. The company's earnings per share (EPS) are expected to hit $2.20-$2.30, aligning with Evercore ISI's higher-end estimate and slightly above the consensus.
Albertsons has also decided to increase its dividend to $0.15, up 12%, resulting in a yield of over 3%, and authorized up to $2 billion in stock buybacks, which could represent nearly 20% of the company's market cap.
The lawsuit against Kroger seeks billions in damages for the willful breach of their merger agreement, in addition to a $600 million termination payment. These financial maneuvers and legal actions indicate Albertsons' commitment to enhancing shareholder returns despite the recent challenges faced by the stock.
With a current dividend yield of 2.59% and an EV/EBITDA ratio of 6.45, InvestingPro analysis suggests the stock is currently fairly valued, offering a balanced risk-reward profile for investors.
Evercore ISI also outlined potential risks for Albertsons, including a challenged consumer base, competitive pressures from major retailers like Walmart (NYSE:WMT), Amazon (NASDAQ:AMZN), and Costco (NASDAQ:COST), and the need for effective execution amidst potential workforce reductions and cost-saving measures. The firm suggests that if Albertsons can stabilize its EBITDA while boosting shareholder returns, the stock could potentially reach the high $20s.
In other recent news, Albertsons Companies, Inc. has terminated its merger agreement with Kroger Co (NYSE:KR). following a court ruling that blocked the proposed union. This decision marks a significant shift in the retail grocery landscape, highlighting the challenges major mergers can face from regulatory bodies.
Albertsons is now seeking billions in damages from Kroger, alleging refusal to divest assets necessary for antitrust approval and neglect of regulators' feedback among the reasons for the merger's failure.
Despite these developments, Albertsons maintains a strong financial outlook. The company projects identical sales growth between 1.8% and 2.2% for fiscal 2024, adjusted EBITDA between $3.90 and $3.98 billion, and adjusted net income per share between $2.20 and $2.30. Moreover, Albertsons plans to increase the quarterly cash dividend by 25% from $0.12 to $0.15 per share and has authorized a new share repurchase program of up to $2 billion.
RBC Capital Markets has revised Albertsons' price target from $22.00 to $21.00, maintaining an Outperform rating on the stock. This adjustment follows the court's decision to halt the merger. Albertsons has also seen significant changes to its Board of Directors, with Jim Donald assuming the role of independent Chair and Stephen Feinberg, co-founder of Cerberus Capital Management, joining as a Board member.
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