Albertsons Earnings: Productivity and Digital Efforts Shine, but Competition Clouds Industry Outlook

Albertsons' first quarter (ended June 17) highlighted its ability to navigate well amid an intensifying competitive landscape, which we expect to endure. Having largely accounted for this challenging environment, as reflected in just 2% sales and gross profit growth on average during the next five years, we don’t plan to materially adjust our $28 stand-alone fair value estimate, leaving shares undervalued. Our fair value estimate assumes that the proposed acquisition of Albertsons by Kroger will be blocked by regulators on antitrust grounds given concerns over higher food prices for consumers.