Should Albertsons stock be in your basket?
Grocery stores like Albertsons Companies (NYSE: ACI) is not a group that often comes to mind when investors think of making big gains. But that doesn’t mean they don’t belong in a well-diversified portfolio.
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As we learned last year, owning companies in defensive sectors can really soften the blow when the market plunges. And since people will always need to buy groceries regardless of the economic environment, it doesn’t get more defensive than food stocks.
Albertsons is one of the most recent grocers to hit the big exchanges. His action rebounded well in 2021, but saw a four-day losing streak before this week’s earnings report. With the streak stretched to five after a disappointing prospect, maybe it’s time to go on the offensive with that defensive name.
What did Albertsons report for the fourth quarter of 2020?
Albertsons has an unusual fiscal calendar as its fourth quarter 2020 ended on February 27e from 2021. Identical store sales increased by almost 12%. Unsurprisingly, this was led by a massive increase in digital sales to the tune of 282%. Revenue growth would have been even stronger if fuel sales had not fallen due to fewer cars on the road amid the pandemic. Adjusted earnings per share (EPS) stood at $ 0.60, beating analyst consensus by one cent.
Fourth quarter and full year results (sales up 17%) are undeniably strong. In fact, it has been a banner year for Albertsons and the company has racked up market share gains. Unfortunately, what stole the show was management commentary around fiscal 2021.
He said he expects identical sales to decline from 6% to 7.5% in the new fiscal year, which would equate to cumulative two-year growth of 9.4% to 10.9%. . However, the market ignored this latter part, choosing to focus on the inevitable drop in sales to come. Adjusted EPS is expected to be between $ 1.95 and $ 2.05, a substantial decline from the $ 3.24 recorded in fiscal 2020.
What are the technicians saying about the Albertsons?
Speaking of pullbacks, Albertsons shares are now at 12.5% of their April 20 valuee intraday peak of $ 20.89 after liquidation after profits. The red candle of April 26e has a closing price that is based perfectly on the moving 50 day moving average where the stock will likely continue to receive support. Albertsons is a bargain investors should toss in their basket like in an episode of “Supermarket Sweep” on TV.
Given the limited trading history of Albertsons shares, few technical trends have emerged. There is, however, an active chart pattern that portends a possible run to $ 24.10 to $ 25 by this summer. The ascending continuation triangle formed on the daily chart on April 16e when Albertsons got $ 20 for the second time. If the dumped grocer may rebound again after its last swoon, a price check could send it back in the $ 20 range shortly.
Is Albertsons Stock a Buy?
The grocery store operator’s outlook for fiscal 2021 was “bearish” for the market, but a more appropriate assessment would have been “realistic”. After a year of extraordinary circumstances prompting consumers to behave extraordinary, why expect anything other than tough comparisons in 2021?
Not only should management’s forecasts sound realistic, it should be heartwarming to hear an honest assessment of what’s to come rather than exaggerated comments about unsustainable hyper-growth. Just because Albertsons and the grocery industry will face slower growth as economic conditions normalize does not mean they are not good investments.
There are positive undercurrents in Albertsons’ business model that suggest it can still generate respectable grocery store-like growth over the long term. In a space notorious for its ultra-low margins, Albertsons has managed to increase its margins despite a surge in spending related to COVID-19. Cash flow was solid in 2020, which also suggests an improvement in operational performance.
In addition, the company has taken market share from competitors who have failed to adapt to the digital transformation underway in the grocery industry. The balance sheet is also strengthening due to Albertson’s commitment to reduce its debt. Its net debt ratio was almost halved to a very manageable 1.5x in fiscal 2020. In addition, Albertsons has an active share buyback program and offers a forward dividend yield of 2.2%.
For these reasons, Albertsons’ cautious outlook for 2021 should not scare investors away. In fact, for those with a vision over three years, it should do the opposite. As long as people keep eating, Albertsons’ portfolio of strong grocery brands and growing technology platforms will generate defensive growth for the portfolio over the long term.
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