In a recent appearance on Schwab Network's the Watch List with Tom White, Chris Wang provided expert insights and analysis on the Albertsons/Kroger merger and grocery retailers.

 

 

Albertsons/Kroger

– Expect the merger to close in the 1st half of 2024

– Albertsons is trading at a 15.6% discount to the deal price: Offer price $34.1 minus the special dividend ($4 billion) of $6.85 = $27.25

– FTC couldn’t stop the MSFT/ATVI deal – we don’t think they will stop the ACI/KR deal either

– if the deal falls through, ACI is trading at a reasonable 8.7x 2024 earnings vs 10x for Kroger

– Kroger has outperformed the S&P 500 over 20 years: +397% vs +326%; Kroger has bought back over 50% of shares over that time period

Kroger is trading near its trough multiple of 9x (2012) forward earnings. It is a good value here at 10x forward earnings. Kroger traded at 15x in 2021/2022 – if it gets back to that multiple, the stock has 50% upside to $68.

Kroger has extremely good management with a proven track record of success. They have high return on equity at 30%; have grown earnings by 20% per year for the last 5 years with sales growth of 5%.