Solid Second Quarter for Albertsons as It Embarks on Merger Process; Shares Trade Fairly

Our $28.50 per share valuation of no-moat Albertsons should rise by a low- to mid-single-digit percentage, reflecting the time value of money and solid second-quarter earnings (including 7% identical sales growth) that has it tracking ahead of our full-year estimates (3.5% expansion). Our long-term forecast (low-single-digit percentage revenue growth, mid-single-digit percentage adjusted EBITDA margin) and valuation reflect Albertsons’ prospects on a standalone basis, as we believe the firm’s combination with narrow-moat Kroger will garner regulatory resistance, with divestitures potentially insufficient to garner approval. We still suggest prospective investors await a greater margin of safety.