Supermarket giant ‘Albertsons’ set to IPO next week – should Walmart investors be worried?

Written by Sergeo Domtchenko

When you think of the retail industry, who comes to mind first, it is probably not Albertsons? The likes of Walmart (NYSE: WMT), Woolworths (ASX: WOW), Wesfarmers (ASX: WES), and the Super Retail Group (ASX: SUL) instantly come to mind for most investors. Last year alone, the U.S. retail industry was worth a whopping a U.S. $5.3 trillion. Just think about the investment potential. Thus, when a supermarket goliath, such as Albertsons, is about to go public we expect nothing less than investors to stir with excitement.

Table of contents 
1. Who is Albertsons?
2. Why did the Company Make Headlines This Week?
3. Is Albertsons Worth the Investment?

Who is Albertsons?

Founded in 1939, Albertsons Cos. is the second-largest supermarket operator in North America behind Kroger (NYSE: KR). In 2018, Albertsons ranked 53rd on Forbes’ Fortune 500 list of the largest U.S. companies by total revenue. The company operates 2260 retail stores under the following banners:

  • Albertsons
  • Safeway
  • Vons
  • Pavilions
  • Randalls
  • Tom Thumb
  • Carrs
  • Jewel-Osco
  • Acme
  • Shaw’s
  • Star Market
  • United Supermarkets
  • Market Street
  • Haggen.

Additionally, the company operates 1726 pharmacies, 402 petrol stations, 23 distribution centres and 20 manufacturing plants. Albertsons employs over 267,000 people. Thus, branding Albertsons as a supermarket behemoth seems like a no brainer.

Why did the Albertsons IPO make headlines this week?

Albertsons announced this that it would be going public next week according to a company filing. Consequently, investors were filled with elation. The company plans to offer 65.8 million shares of common stock under the code “ACI” on the NYSE. If shares are sold in the price range of U.S. $18-20, analysts are forecasting that Albertsons will have a market capitalisation of over U.S. $10 billion.

However, Albertsons did not strike lucky the first time. Albertsons IPO next week comes after two failed attempts to go public. In 2015, investors pulled their offer to merge with Safeway amidst poor retail market conditions. In 2018, an effort to go public via a U.S. $24 billion merger with Rite Aid Corp. collapsed after investors rebuffed.

Despite the disappointing track record, the circumstances are very different this time around. Sales rose by 3.3% in 2019 to U.S. $62.5 billion; up from U.S. $60.5 billion. Also, net profitability rose by an astounding 255.7% to U.S. $466 million. Moreover, the coronavirus pandemic is causing online sales to go through the roof. 

Before the pandemic, Albertsons claimed that it was 1st or 2nd by market share in the metropolitan areas it operates in. Since then, the company gained more market share across most of those markets. According to company officials, “Our competitive position will strengthen as a result of customer receptiveness to our response to the challenges of the COVID-19 pandemic and the strength of our supply chain.”

Is Albertsons IPO worth the investment?

Before I start, I am obliged to remind our viewers that this is not advice, only general commentary from my extensive research in this area.

Short answer: Yes (opinion not advice).

If the recent success of DraftKings (NASDAQ: DKNG) and Nikola Corporation (NASDAQ: NKLA) is anything to go by, then Albertsons is set to skyrocket on debut.

Investing for the Short-Term

If I were investing I would ride out the euphoria wave for the first 1-3 weeks, similar to the Draftkings share price growth. However, investors must be across all global developments if they are to make this strategy work. Any news surrounding U.S. – China tensions, the outbreak of a 2nd wave of COVID-19 cases or underwhelming economic data has the potential to burn small retail investors. Ultimately causing Albertsons IPO to be bearish at the bell.

Investing for the Long-Term

Investing in Albertsons for the long-term holds less risk. In Warren Buffett’s own words, “The best investments are the ones where you put your money into something and don’t look at it for the next 10 years.”

With so much uncertainty ensuing global markets, this strategy will minimise an investor’s risk to future events regarding COVID-19, the US-China crisis or national recessions. Moreover, due to the diverse nature of Albertsons’ offerings, I believe this is a “recession-proof” stock (opinion not advice). Regardless of whichever phase in the Business Cycle, all consumers will need to purchase groceries and medicines.

Moreover, alcohol sales should remain consistent. During prosperous times, consumers will look to celebrate by purchasing alcohol. Conversely, during harder times, consumers will look for an outlet to wash their troubles away. Finally, sales & profitability are likely to rise as Albertsons reduces its future costs through the adoption of newer technologies. Thus, with over 80 years of business experience, I am confident that Albertsons will continue to deliver value to customers & shareholders for many years to come (opinion not advice).

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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

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Written by Sergeo Domtchenko, Associate of YIG.

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