Albertsons Q1 Sales Jump Over 25%; Buy With Target Price of $24

Albertsons Cos Inc, an American grocery company founded and headquartered in Idaho, reported that its sales jumped over 25% in the first quarter as digital sales surged 276% largely driven by home deliveries during the coronavirus pandemic, sending its shares up over 2% pre-market.

Sales and other revenue increased 21.4% to $22.8 billion during the 16 weeks in the first quarter of fiscal 2020, compared to $18.7 billion a year earlier. That increase was driven by the company’s 26.5% increase in identical sales, which benefited from a 276% jump in digital sales and an increase in store sales, both largely driven by the COVID-19 pandemic, the U.S. grocer said.

Gross profit margin increased to 29.8% during the first quarter of fiscal 2020 compared to 28.0% during the first quarter of fiscal 2019. Net income was $586.2 million during the first quarter of fiscal 2020 compared to net income of $49.0 million during the first quarter of fiscal 2019.

At the time of writing, Albertsons shares were trading 2% higher at $16.11, up nearly 4% since it began trading publicly on June 26, 2020.

Executive comment

“We generated strong financial performance in the first quarter, including robust cash flow and enhanced liquidity, which support our continued investment to benefit our associates, customers, communities and stockholders,” said Chief Executive Officer Vivek Sankaran.

“We have accelerated our digital and e-commerce strategy to adapt to market conditions.”

Albertsons stock forecast

Sixteen analysts forecast the average price in 12 months at $19.57 with a high forecast of $26.00 and a low forecast of $15.00. The average price target represents a 21.48% increase from the last price of $16.11. From those 16, 13 analysts rated ‘Buy’, three rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $15 with a high of $24 under a bull scenario and $6 under the worst-case scenario. Several other equity researches have also recently upgraded their stock outlook for Albertsons. BofA Global Research initiates with buy, $22 price objective; BMO initiates with outperform rating and $18 target price.

Telsey Advisory Group initiates with outperform, $26 target price; Deutsche Bank initiates coverage with buy rating and $21 price target and JP Morgan initiates with overweight rating and $19 target price. We think it is good to buy at the current level and target at least $24 in the short-term.

Analyst view

“Albertsons is one of the largest conventional food retailers with entrenched positioning in its markets & recently stabilized performance post-Safeway. We lean cautious on the outlook as ACI is more of a #2 player, consumer perception is mixed, studies show pricing gaps vs. peers, and we anticipate margin pressure from e-comm and intensifying competition,” said Simeon Gutman equity analyst at Morgan Stanley.

“The stock is discounting stable market share (~2.25% IDs), limited margin expansion, modest EPS growth (+MSD%), and its material pension exposure. We agree with these assumptions. COVID-19 disruption is driving a meaningful acceleration in ID sales & profitability in 2020. ACI is well positioned to benefit from secular share shift to Food at Home.”

Upside and Downside Risks

COVID-19 provides meaningful ID sales/EBITDA uplift with secular Food at Home shift; Sales initiatives and improving value perception drive share gains; Margins expand due to productivity initiatives driving MSD/HSD EBITDA/EPS growth, Morgan Stanley highlighted as upside risks to Albertsons.

COVID-19 uplifts fade by 2021 with no longer-term uplift; ACI cedes share and initiatives fail to improve loyalty; Margins contract driven by competition and e-comm, Morgan Stanley highlighted as downside risks.