After Albertsons (NYSE:ACI) returned to the public markets on June 26, it gained from its $15.50 a share opening price to hit a day high of $16.50. Now ACI stock is flirting with $14.50 after falling as low as $13.75.
The Boise, Idaho-based company is one of the largest food and drug retailers in the U.S. Let’s take a closer look at whether long-term investors should include the shares in their portfolios.
I believe ACI stock would offer considerable value if the price goes below $13 or lower. Therefore you may want to keep the group on the radar screen.
How Albertsons Makes Money
As of May 2020, Albertsons had 2,252 stores and around 270,000 employees across 34 states and the District of Columbia. Over 1,700 stores also have in-store pharmacies. The stores welcome about 33 million customers each week. In addition, the company operates over 400 fuel stations. And it is number 51 on the Fortune 500 list.
Millions of Americans across the country would likely know at least one of its brands, including Albertsons, Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen and Carrs. Albertsons also owns the New York City-based meal kit company Plated.
Like many other grocery chains, Albertsons has seen a considerable uptick in business since the start of the novel coronavirus pandemic. For the four weeks ended March 28, identical sales increased by 47%. And the momentum continued in April, too.
In a recent regulatory filing, management reported that “to meet our requirements for increased labor in order to meet customer demand in store and across e-commerce channels, we have partnered with major companies to provide temporary jobs to their employees who have been furloughed or had their hours cut. We have hired over 55,000 new associates since the beginning of fiscal 2020.”
For FY 2019, revenue was over $62 billion, compared $60 billion in 2018. The revenue translated into net income of $466.4 million in FY 2019, compared to $131.1 million in FY 2018. Albertsons has a significant focus on perishable products as those sales accounted for more than 41% of its revenue in fiscal 2019.
In the rest of the year, the Street would like to see a continuation of the uptrend in revenue and net income and get a better feel for the effects of the pandemic on operations and metrics.
Online Sales are Likely Long-Term Tailwind for ACI Stock
In addition to its in-store offerings, Albertsons has been increasing its e-commerce presence. The current shop-at-home, work-from-home trend is likely to keep benefiting retailers like Albertsons.
In its its Q4 FY 2019 ending in February, “digital sales jumped 32% year over year in the fourth quarter, Albertsons noted. Also showing strong growth were “Just For U” loyalty program enrollments (+26%) and digital coupon redemptions (+37%).”
According to a recent McKinsey & Company report, “digital disruption at the grocery store” is going to be one of the most important themes in the near future. In 2019, online grocery sales accounted for 3-4% of sales. Within the next five years, it could easily go over 10%. And Albertsons is likely to ride that wave successfully.
The grocery operator was recently named by Supermarket News as “Retailer of the Year for 2020.” “The past year has seen Albertsons successfully go public, spur growth and innovation in strategic areas such as e-commerce and private brands, and refresh its store base, among other initiatives, wrote the trade publication. “The result: improved customer loyalty, a resurgent financial performance and market share gains.”
Furthermore, research by Kathryn Adkisson of Robert D. Clark Honors College highlighted that: “There are barriers to entering the grocery industry … The industry does not see a lot of new companies trying to come into the marketplace due to high start-up costs and pre-existing distribution networks because other companies already have ties with suppliers.”
Put another way, Albertsons, as well as other grocery retailers, are likely to keep their leadership status for years to come.
The Bottom Line on ACI Stock
If you’re considering investing in ACI stock now, you may want to see how the next several quarterly reports come out. With a newly listed company, it is important to see the trend in its fundamental metrics.
With that in mind, I’d look to buy the dips in the shares.
If you currently own ACI stock, you may also consider initiating a covered call position with approximately a three-month time horizon, i.e., October 16-expiry. Such a covered call position would enable to you to participate in a potential up move and also offer you some downside protection, too.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, including a Ph.D. degree, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan did not hold a position in any of the aforementioned securities.