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Why Albertsons Is Tumbling 11% Today

By Rich Duprey - Jan 28, 2021 at 3:35PM

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The supermarket chain still looks undervalued despite the recent rise in its stock.

What happened

Shares of Albertsons (ACI -0.23%) are tumbling 11.4% in afternoon trading Thursday, after Evercore analyst Michael Montani downgraded the supermarket giant to in-line from outperform.

So what

The downgrade follows a similar downgrade yesterday from a Wells Fargo analyst who cited valuation concerns, although he still expected tailwinds from the COVID-19 pandemic to continue providing positive results for the grocer near term.

An Albertsons supermarket

Image source: Albertsons.

Albertsons stock was up about 20% so far in 2021 before its shares started falling today, and though the analysts are concerned it may have gotten ahead of itself, it trades at better multiples than most of its peers.

Albertsons goes for 11 times next year's earnings estimates compared with Kroger at 14 times estimates and 25 times for Walmart. It also is better valued compared to its sales. 

At just four times the free cash flow it producers, the supermarket chain seems deeply discounted.

Now what

Although a number of other analysts also downgraded Albertsons earlier in the month, one from Northcoast Research reiterated his buy rating on the retailer two weeks ago, saying the grocer's third-quarter earnings "did not disappoint" while raising his earnings estimates for the current fiscal year and for next year, too.

He said Wall Street is underestimating the supermarket chain as management believes earnings will exceed consensus estimates.

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