Hello fellow investors. Like I’ve mentioned before I would like to dedicate a small part of my portfolio to invest in separate companies. I’m still researching broker options (and actual companies), but in this light, I want to start a new ‘series’ on my blog. Starting with a stock analysis on Albertsons Companies. The reasons why I want to invest in separate stocks as well are the following: This will keep investing interesting even though it will be with very little money compared to the rest of my portfolio. It will also help me learn more about how to value companies and understand their financials.
Keep in mind that I am by no means a financial expert. This Analysis is purely made for me to learn more about investing. If you see any mistakes or have decent arguments as to why you would not agree, don’t hesitate to put them in the comments down below.
That being said, let’s get straight into the stock analysis for Albertsons Companies, Inc.
Overview
Albertsons Companies, Inc. operates as a food and drug retailer in the United States through its subsidiaries. The company operates around 2.250 food and drug retail stores at the time of writing. These stores offer grocery products, general merchandise, health and beauty care products, pharmacy, fuel, and other items and services. They also operate 1.726 pharmacies, 1.290 in-store branded coffee shops, and 402 adjacent fuel centers.
Their biggest direct competitor is Kroger but Walmart, Whole Foods Market, … can probably be viewed as competitors as well. Albertsons is the second-largest supermarket operator in the United States. Last year they brought Vivek Sankaran on board as President and CEO who was previously CEO of PepsiCo as well. Vivek Sankaran took the company public at the end of June 2020 after 2 previous failed attempts a couple of years ago.
Albertsons Companies, Inc. Also recently announced they will be paying a quarterly dividend of 0.10$. Which at their current share price is a yield of around 2.80%. This dividend should be thoroughly covered as it is around 12-13% of their earnings.
Competitor comparison
Albertsons Companies, Inc.
Market Cap
$6.83b
Revenue (Jun 20 2020)
$66.468b/yr
Earnings (Jun 20 2020)
$999.700m/yr (1.5% profit margin)
Price To Earnings Ratio
6.83
Price To Book Ratio
5.7
Debt To Equity Ratio
291%
Current Dividend Yield
2.8%
Payout Ratio
12%
Kroger Co
Market Cap
$26.35b
Revenue (Aug 15 2020)
$128.905b/yr
Earnings (Aug 15 2020)
$2.602b/yr (2% profit margin)
Price To Earnings Ratio
10.3
Price To Book Ratio
2.7
Debt To Equity Ratio
137.7%
Current Dividend Yield
2.11%
Payout Ratio
25%
As you can see Kroger is quite a bit larger than Albertsons. Revenue is around 2 times higher with earnings being 2.5 times higher. Other than that both companies are easily comparable. Note that the market cap of Kroger is almost 4 times higher. The biggest concern for me is Albertsons’ debt to equity ratio. This is also what keeps the stock price back in my opinion. The good news is that Albertsons has been working on reducing its debt over the last months. This is something their new CEO has been doing a good job on! As you can see even though Kroger’s Equity has been rising, so has their debt.
Knowing that Albertsons is trying to lower their debt, I would rather see them doing that instead of using a part of their revenue to pay a dividend…
Screenshots are taken on Simply Wall St
Valuation
Taking into consideration all statistics of Albertsons Companies, inc. as well as their competitors, I am of the opinion that they are undervalued to some extend. The difficulty is in trying to figure out how much. I think Albertsons will be able to increase its profit margin as well while lowering debt because of the lower interest payments that will follow.
Comparing Albertsons purely to Kroger, they could easily reach a valuation of around $13b. This would translate into a share price of $25-30.
Their next earnings will be announced on 20/10/2020. I am very interested in what they will look like.
This was it for my stock analysis on Albertsons. Do you think I have missed anything? Please point it out in the comment down below. I’m very interested to learn more about your opinion!
