2023-03-21 09:57:22 ET
Albertsons Companies ( NYSE: ACI ) is likely undervalued “due to technical factors and related sentiment” and merger uncertainty amid a pending deal with Kroger ( KR ), according to morgan Stanley.
Equity analyst Simeon Gutman retained a Hold-equivalent rating on the stock given a lack of visibility on the road ahead, but indicated significant upside as a standalone company. Additionally, its underperformance relative to Kroger ( KR ) ahead of the merger remains difficult to justify, in his view.
“The fundamental and market backdrops for ACI have not deteriorated over the past month. If anything, the read through from KR's Q4'22 earnings should have been neutral, if not positive for ACI in terms of current Food at Home trends as well as sales and margin retention in '23,” he told clients. “The market backdrop, which has gotten more volatile/turbulent in the past couple weeks, should also be a positive for defensive, durable Food Retail stocks like ACI. This is why we lean toward technical/sentiment factors as the primary reason for ACI's underperformance.”
If the merger is to be blocked, the standalone value “appears to be $22-$27 depending on how pensions are considered,” according to Gutman. Albertsons ( ACI ) stock opened modestly higher on Tuesday, trending in a range between $19.21 and $19.31.
Read more on Northcoast Research’s recent upgrade of Kroger .
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Albertsons undervalued amid merger uncertainty, negative sentiment - MS