Albertsons stock jumps amid news of strategic review

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Albertsons (NYSE:ACI) gained 10% after the supermarket chain announced on Thursday that it was reviewing potential strategic alternatives.

"Potential suitors for ACI appear to be in the real of possibility," Oppenheimer analyst Rupesh Parikh wrote in a note.

News of strategic alternative review may "largely neutralize" some near term concerns of increased selling pressure from Albertsons original IPO sponsors, which was a "key tenant for Oppenheimer's downgrade of ACI to market perform in October.

Morgan Stanley analyst Simeon Gutman said the announcement of a review of strategic alternatives was a surprise and there may be a connection between ACI's sponsor and the announcement. Gutman has a underweight rating and $26 price target on ACI.

Some potential sources of value for Albertsons include that its core supermarket business may be undervalued, Gutman wrote in a note. In addition, ACI owns ~40% of its real estate portfolio and ACI has $2.7B of cash on its balance sheet.

Guggenheim analyst John Heinbockel wote that ACI Has $13.8B of inside ownership from various “sponsors”, a portion of which may need to be monetized.

"Given the unique magnitude and breadth of “sponsor” ownership, it seems likely that this review may revolve around various monetization alternatives, from the company itself as well as public and strategic investors," Heinbockel wrote. "With strong business momentum and management of the overhang, we stay Buy rated with a $34 PT on a potentially conservative 5.7x EBITDA multiple."

Also see SA contributor The Value Pendulum's piece from January entitled "Albertsons: All Eyes On Share Price Correction And 2022 Outlook."

Comments

[olde1two]

ACI is doing reviews of their different stores from each market to consolidate or sell them off. This will free up capital and return monies to stockholders mainly Cerberus.

[lasalle1311]

Isn,'t KIM a major shareholder of ACI ? Will this mean a major positive effect for KIM?

[SJJ1]

Albertsons should again try to acquire Rite Aid. Since Albertsons has competent management already in place that could expand fresh grocery to probably 70%+of rite aid locations and that would likely be very accretive because rite aid stores are basically break even with out grocery and have lots of extra space to accommodate Grocery. Getting rid of most or all of the corporate overhead at Rite Aid would also definitely add value since it could probably be absorbed into Albertsons existing infrastructure.

[cwebjohn]

@SJJ1 RAD is a pile of garbage though... Why?

[SJJ1]

@cwebjohn Because it’s really cheap (5 billion in gross profit 3 billion in real debt, essentially break even +-). If you add fresh grocery to underutilized rite aid stores it could be a huge value creator for ACI. Imagine ACI being able to open 2,000+- new Grocery stores that were already break even and already staffed etc. Then add Fresh grocery rite on top of it, it could be a huge win for ACI. The equity value today is 500 million and probably need to pay 2 billion (36 a RAD share) to take it over without a fight. It’s very synergistic with ACI they realized it years ago but the RAD investors are stupid and the offer was also complicated so it was misunderstood.

[cwebjohn]

@SJJ1 RAD could go under quickly with the loss of COVID revenue. I am not buying RAD shares at the moment but mainly because I was almost burned the last time. Thankfully I got out in time...