Simple Concepts Research Group

Is Albertsons (NYSE: ACI) Stock Overvalued Right Now?

by | Dec 14, 2021 | Stock Picks

Albertons (ACI) Company Overview & Stock Price Forecast

This article provides a brief analysis and stock rating for Albertsons (ACI) including an updated stock price target. Additional data on the company’s earnings yield, price/earnings ratio, return on invested capital and YTD performance are discussed as well.

Albertsons Fundamentals

ACI Stock Rating

Stock Price Target: $43.58

In the section below, we discuss the earnings yield, P/E, return on invested capital and YTD performance for Albertsons in comparison to the Grocery/Food industry and the S&P 500.

Albertsons is a Large Cap company with a Market Cap of $14.4B.

How are investors using Albertsons earnings yield to assess the company?

Albertsons (ACI)_ Earnings Yield in Comparison to the Grocery_Food Industry, S&P 500 and 10 Year Treasury Rate

The earnings yield is used to show the percentage of a company’s earnings per share. Investors typically use earnings yield to determine which assets are underpriced or overpriced relative to other variables, like sector, industry or bond yields. Simply put, the earnings yield of a company can be used to assess how expensive a company is in relation to the earnings that are generated. When valuing companies, the SIS Research Group does not utilize the inverse P/E ratio to calculate the earnings yield. Instead, we use an adjusted earning yield calculation to capture variation amongst companies (i.e. debt and tax rates).

The current earnings yield for Albertsons is 24.44%, in comparison to 3.37% for the S&P 500 and 1.48% for the 10-year treasury bond. The median earnings yield for the Grocery/Food industry is 11.25%.

What does Albertsons Price-to-Earnings Ratio (P/E) tell investors about the company?

Albertsons (ACI)_ Price-to-Earnings, Price-to-Sales and Price-to-Book Value in Comparison to the Grocery_Food Industry and the S&P 500

The price-to-earnings ratio (P/E) is a relatively popular metric used by investors and analysts for valuing a company’s stock. The P/E ratio can be used to show how a stock’s valuation compares to other companies and the total market. Investors use the P/E ratio to determine what the market is willing to pay today based on a company’s past or future earnings. A high P/E ratio could mean that a stock’s price is too high relative to earnings, which could be a signal that a stock is currently overvalued. In turn, a low P/E ratio could indicate that a company’s current stock price is low relative to earnings. 

Albertsons is currently trading at a P/E of 25.95. The P/E for the Grocery/Food industry is 29.60 and the P/E for the S&P 500 is 29.68.

What is the current Price-to-Sales Ratio (P/S) for Albertsons?

The Price-to-Sales Ratio (P/S) looks at a company’s market cap and revenue to determine valuation. The P/S ratio is calculated by taking a company’s market cap and dividing by the total sales or revenue. The P/S ratio gives an idea of how much the market values every dollar of a company’s sales and can be effective in valuing unprofitable growth stocks or companies that are currently undergoing special situations or challenges. A lower the P/S ratio can be an indicator of good value.

Albertsons is currently trading at a P/S of 0.20. The P/S for the Grocery/Food industry is 0.21 and the P/S for the S&P 500 is 3.22.

How does Albertsons Price-to-BookRatio (P/B) compare to the Grocery/Food industry?

Price-to-book value (P/B) is the ratio of the market value of a company’s shares divided by its book value of equity (the value of it’s assets on the books). The book value is the difference between the book value of assets and liabilities. Typically, investors use the P/B ratio to assess if a stock is valued properly (a value of one means that the stock price is trading in line with the book value of the company). A company with a high P/B ratio could mean the stock price is overvalued as well as the converse.

Albertsons P/B ratio is 10.79. The P/B for the Grocery/Food industry is 2.51 and the P/B for the S&P 500 is 4.86.

How attractive is Albertsons Return on Invested Capital (ROIC) to investors?

Albertsons (ACI)_ Return on Invested Capital in Comparison to the Grocery_Food Industry and the S&P 500

Investors use the return on invested capital (ROIC) to assess how efficient a company is at turning capital into profits. The ROIC is the amount of money a company makes on it’s investments that is above the average cost of debt and equity.

Investors can use the ROIC to provide context for metrics like the (P/E) ratio. For instance, when used in isolation a low P/E ratio could suggest a company is oversold but the decline could be because a company is no longer generating value for shareholders. Conversely, companies that consistently generate high rates of ROIC can plausibly trade at a premium compared to other stocks, even if their P/E ratios are high.

Albertsons ROIC is currently 4.22% in comparison to 9.46% for the Grocery/Food industry and 8.60% for the S&P 500.

What is Albertsons YTD Performance in comparison to its industry and the total market?

The year-to-date (YTD) performance is the amount of profit/loss realized by a stock since the first trading day of the current calendar year. 

The YTD performance for Albertsons is 78.16%. The Grocery/Food industry has a YTD performance of 20.14% in comparison to the YTD S&P 500 performance of 24.79%.

Albertsons (ACI)_ YTD Performance in Comparison to the Grocery_Food Industry and the S&P 500

Recent Financial Results (Q2, 2021)

  • Sales and other revenue of $16.5B compared to $15.8B in previous years quarter (increase was primarily driven by 1.5% increase in identical sales and higher fuel sales)
  • Gross profit margin decreased to 28.6% during the second quarter compared to 29.0% during the second quarter of fiscal 2020
  • Adjusted EBITDA of $965.4M, 5.8% of sales, during the second quarter compared to $948.4M, 6.0% of sales, during the second quarter of 2020
  • Net income of $295M
  • Increased quarterly common stock dividend by 20% to $0.12 per share

Stock Price Target: $43.58

Company Overview

ACI Stock Rating

Albertsons Companies operates food and drug stores in the US. The company’s food and drug retail stores offer grocery products, general merchandise, health and beauty care products, pharmacy, fuel, and other items and services. As of February 2021, it operated 2,277 stores under various names, including Albertsons, Safeway, Vons, Pavilions and Balducci’s Food Lovers Market; and 1,727 pharmacies, 1,313 in-store branded coffee shops, 400 adjacent fuel centers, 22 distribution centers, and 20 manufacturing facilities, as well as various digital platforms.

The company was founded in 1860 and is headquartered in Boise, Idaho. Albertsons is a subsidiary of Albertsons Investor Holdings LLC. The current CEO is Vivek Sankaran.

Be sure to add Albertsons (ACI) to your Watch List and if you haven’t done so already, check in on the performance of our Current Portfolio. Keep it simple and always do your due diligence.

This material is provided for informational purposes only and is not financial advice. The information contained herein should not solely be used for the formation of an investment decision, whether you are a long term or short term investor.