Is It Time To Buy More Albertsons Companies?

Albertsons Slips After Strong Earnings, Upward Guidance

Albertsons Companies NYSE: ACI has been working hard on improving its business over the past year or two and those efforts are showing up in the results. The company reported better than expected earnings for FQ3 and gave favorable guidance but it was not enough to get the stock moving higher. The reason is that tailwinds put in place by the pandemic are diminishing or expected to diminish and that is having an impact on the longer-term outlook. With the comps getting increasingly hard to beat the outlook for growth is coming to into question and that is never a good thing for share prices. 

Wells Fargo analyst Edward Kelly said "fundamentally, the stock faces challenges at this point in the COVID cycle. Near-term results should be good given Omicron, but tough multi-year demand comparisons, a more value conscious consumer with stimulus roll-off, eventual disinflation, the lap of a vaccine benefit, and the need to ramp digital investment all represent challenges to the narrative beyond 2021."

Albertsons Had A Great FQ3

Albertsons had a great FQ3 despite the naysaying analysts. The company reported $16.7 billion in revenue, down sequentially but up 8.4% from last year. The revenue was driven by a 5.2% increase in comps and a 9% increase in digital. The comps are attributed to incremental pricing increases, COVID-related sales, and new stores which fits into the Q4 earnings cycle that is developing. The revenue also beat the Marketbeat.com consensus by 410 basis points so there is some strength in the number. 

Moving down the report, the company’s EBITDA margin was flat on a YOY basis which is good news in light of labor and input cost inflation. On the bottom line, the $0.74 in GAAP earnings beat the consensus by $0.21 while the $0.79 in adjusted earnings is up $0.13 from last year and beat by $0.26. 

Looking forward, the company is expecting to see the strength continue into the end of the year. Execs are guiding revenue to a decline of only -1% YOY from the previous range of down -2% to -3% and there is going to be earnings strength as well. The new guidance projects EPS in the range of $2.90 to $2.95 versus the consensus of $2.32 which is a two-edged sword for the market. While good in the near term, the revised guidance will make the comps in fiscal 2022 even tougher. 

The Analysts Are On The Fence But Raise Targets 

The Marketbeat.com consensus estimate of 15 analysts is a firm Hold with a price target of $28.13. That target implies the stock is fairly valued at these levels but there is a notable uptrend in the figure. The consensus estimate is up YOY, over the past 90 days, and the past 30 days with a 3.6% increase in the last 30 days alone. In our opinion, this figure will continue to creep higher in the near term at least. The most recent activity includes 4 notes in the wake of the report that include one price target decline and three increases. 

Turning to the chart, the stock fell hard in the wake of the report but may have already hit bottom. Support is evident at the $28.50 level and we think support will hold at or near this level. Longer-term, shares of Albertsons are in a trading range with a bottom near $27 and a top-end near $34. It is likely to stay in that range for the foreseeable future and the low end may get tested before the top end.