Investing.com -- BMO Capital upgraded Albertsons (NYSE:ACI) to Outperform and raised its price target to $25 a share, citing the potential for investors to rotate into “cheap, defensive stocks” in the second half of 2025.
The firm said Albertsons could benefit from valuation expansion after trading at a discount to peers.
“We believe ACI may see valuation expansion from low levels as investors seek cheap, defensive stocks in 2H25,” BMO Capital wrote in a note to clients.
The firm highlighted several factors supporting its upgrade, including stable margins, low earnings expectations, and reduced industry-wide pricing risks.
“Earnings expectations appear appropriately low with margins nearly back to 2019 levels,” analysts said, adding that management has guided 2025 to be an “investment year,” which has already been priced into forecasts.
BMO Capital also noted that competitive pressure on grocery pricing may be limited in the near term.
“Risk of competitive grocery price investments across the industry may be lower than typical given tariff-induced cost pressures for multi-category retailers,” the firm said.
They believe additional upside could come from balance sheet improvements. Albertsons reduced its unfunded pension liability to $3.6 billion as of February 2025, down from $4.9 billion the year prior.
Despite the upgrade, BMO Capital said the stock should continue trading at a discount to Kroger (NYSE:KR) due to operational differences.
“ACI remains well behind in digital and centralizing of processes,” the analysts wrote. The new $25 price target reflects a multiple of 12x fiscal 2027 estimated EPS of $2.07.
“ACI is the cheapest stock in our coverage,” BMO concluded, reiterating that it may see valuation expansion.
