With a daily gain of 3.04%, a 3-month gain of 13.3%, and an Earnings Per Share (EPS) of 2.05, Albertsons Companies Inc (ACI, Financial) has been making waves in the stock market. But the critical question remains - is the stock fairly valued? This article aims to provide a comprehensive analysis of Albertsons' valuation, encouraging readers to delve into the financial intricacies of the company.
Company Overview
Albertsons Companies Inc (ACI, Financial), the second-largest conventional grocer in America, operates 2,271 stores across 34 states. With a significant private-label operation accounting for around 20% of sales, Albertsons has established itself as a major player in the grocery industry. The company's stock price currently stands at $23.76, with a market cap of $13.70 billion. The question of whether this valuation is fair is answered by comparing it with the GF Value, an estimation of the stock's intrinsic value.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. If a stock's price is significantly above the GF Value Line, it is considered overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Albertsons (ACI, Financial) is estimated to be fairly valued according to the GF Value calculation. With its current price of $23.76 per share and a market cap of $13.70 billion, the stock aligns closely with its GF Value. Therefore, the long-term return of Albertsons' stock is likely to be close to the rate of its business growth.
Evaluating Albertsons' Financial Strength
Understanding a company's financial strength is crucial before investing in its stock. Companies with poor financial strength pose a higher risk of permanent loss. Albertsons' cash-to-debt ratio of 0.02 is worse than 93.83% of 308 companies in the Retail - Defensive industry. However, with an overall financial strength rating of 5 out of 10, Albertsons' financial health is considered fair.
Profitability and Growth
Investing in profitable companies carries less risk. Albertsons, with high profit margins and consistent profitability over the past 10 years, offers potential for better performance. The company's profitability is ranked as fair by GuruFocus.
Albertsons' growth is a critical factor in its valuation. With a 3-year average annual revenue growth of 10.6%, Albertsons ranks better than 71.03% of 290 companies in the Retail - Defensive industry. Its 3-year average EBITDA growth rate is 14.2%, which ranks better than 62.02% of 258 companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also provide insights into its profitability. Albertsons' ROIC of 7.64 exceeds its WACC of 5.36, indicating that the company is creating value for its shareholders.
Conclusion
Overall, Albertsons (ACI, Financial) stock is estimated to be fairly valued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 62.02% of 258 companies in the Retail - Defensive industry. To learn more about Albertsons stock, you can check out its 30-Year Financials here.
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