Food and drug retailer Albertsons Companies, Inc. (ACI - Get Rating) was established in 1939. Its vast industry experience and market reach have allowed it to remain one of the most popular retail chains in the country. ACI has been playing a role in the COVID-19  vaccine deployment across the U.S.  by leveraging its extensive market presence that comprises 2250 stores (as of February 2020) across 34 states.

Its grocery retail segment has performed well, given the increased demand for home delivered groceries amid the pandemic. These factors have allowed the stock to advance 9.2% over the past nine months. This moderate gain has caused the stock look relatively undervalued, given the company’s earnings and revenue growth over this period.

However, an anticipated economic recovery this year is causing some investors to rotate away from pandemic beneficiaries, such as technology and retail, and into turnaround industries like restaurants, transportation, etc. This has caused ACI to tumble 7.3% year-to-date.

Here’s what we think could shape the performance of ACI in the near term:

Changing Consumer Habits and Continued Vaccination Drive

The coronavirus pandemic has forced people to change their consumption patterns and to cook more at home, given the closure of restaurants and social distancing norms over the past year. Also,  a level panic shopping was witnessed last year, which  benefited ACI with high turnover. Analysts expect jobless claims for the week ended February 13, 2021 to be around 770,000, significantly higher than  average pre-pandemic levels of 200,000. With high unemployment rates, the demand for relatively inexpensive groceries and daily essentials is expected to remain high versus restaurants traffic.

In addition to this, ACI’s ongoing vaccination drive in partnership with central and state governments should be a key revenue generator. .

Relative Undervaluation

ACI is trading at a discount compared to its peer Walmart, Inc. (WMT), which is the biggest retail chain in the United States. In terms of forward p/e, ACI is currently trading at 8.76x, 66% lower than WMT, which is currently trading at 25.78x.

ACI’s five-year expected PEG ratio of 0.31 is 91.8% lower than WMT’s 3.76. In terms of trailing 12-month price/sales, ACI is currently trading at 0.11x, which is slightly lower than WMT, which is currently trading at 0.76x.

Consensus Price Target and Ratings Indicate Potential Upside

ACI is currently trading 21% below its all-time high of $20.62, which it hit on January 27, 2021. Analysts expect the stock to hit  a fresh high of $20.82, indicating a potential 27.7% upside. ACI has an average broker rating of 1.61, indicating favorable analyst sentiment. Of 17 Wall Street analysts that rated the stock, five  rated it Strong Buy and seven rated it Buy.

Favorable POWR Ratings

ACI has an overall rating of A, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system evaluates each stock on a total eight different categories. The stock has an A grade for Value, and B for both Growth and Quality. This is justified, given the company’s relative undervaluation and  decent profits. ACI’s trailing 12-month ROE and ROA are 39.46% and 6.7%, respectively. Moreover, the company’s revenue and earnings have increased 9.3% and 125.7% year-over-year.

ACI is ranked #5 of 40 stocks in the A-rated Grocery/ Big Box Retailers industry. Click here to check out ACI Ratings for Momentum, Stability and Sentiment.

There are 29 other stocks in the Grocery/ Big Box Retailers industry with an overall rating of A or B. Click here to take a closer look.

Bottom Line

ACI has gained 5.5% since its IPO last June. Despite being one of the biggest and oldest names in the retail industry, ACI has yet to generate  momentum. The company’s trailing 12-month revenue of $69.35 billion is significantly higher than its market capitalization of $7.59 billion. As a relatively undervalued stock, we expect ACI to gain significantly in tandem with the macroeconomic revival and vaccine disbursal.

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ACI shares were trading at $16.37 per share on Thursday afternoon, up $0.07 (+0.43%). Year-to-date, ACI has declined -6.35%, versus a 4.45% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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