Albertsons dips as BofA downgrades stock on near term earnings outlook uncertainty
Investing.com -- Bank of America on Wednesday downgraded Albertsons Companies to Underperform from Neutral and cut its price target to $12 from $16, after the grocer reported solid second-quarter earnings but withdrew its fiscal 2026 outlook pending a comprehensive business review.
The company’s shares fell more than 3% in premarket trading.
Albertsons posted adjusted earnings per share of $0.36, above the Street’s $0.33, with identical sales down 0.8% and gross margin at 26.8%, both slightly ahead of expectations. The company said it will no longer provide a fiscal 2026 outlook until the review is completed in its fourth quarter.
Analysts Robert Ohmes and Vicky Liu cut their price objective to 7 times fiscal 2028 earnings per share of $1.75, down from a prior estimate of 7 to 8 times and $2.15, citing the view that "ACI’s earnings power and valuation could both see pressure over the next 12-18 months" as the company reviews its customer strategy, cost structure, operating model, banner portfolio, market assets and capital allocation priorities.
The analysts said a growing number of initiatives at Albertsons has added operational complexity and competing priorities without effectively improving customer value proposition, traffic, unit trends or market share. They expect the company to reinvest cost savings into price and store experience but see near-term earnings pressure as lower-income consumers continue trading down, supplier cost increases weigh on affordability, and competitive pressure raises the risk of share loss.
BofA flagged several factors that could challenge the Underperform call. Albertsons trades at 7 times fiscal 2028 earnings, compared with a 14 times average among other food retailers, a valuation the analysts see as "attractive." Potential tailwinds include a robust pharmacy business, e-commerce growth of 11% in the second quarter, and four AI initiatives spanning merchandising intelligence, store labor, demand forecasting and digital customer experience.
The bank also noted Albertsons could benefit from its litigation with Kroger over a $600 million merger termination fee, along with a damages claim estimated at close to $9 billion.