Albertson’s CEO Defies Shorts: Claims Batflu Delirium Led to Craving For Finer Cuts of Beef (ACI)

We’re going grocery shopping today – at Albertson’s (NYSE:ACI).

Why?

Because it’s expensive… and dammit, we’re worth it.

A tad TOO expensive for our taste.

Follow along as we break it down.

To start, the company’s fundamentals are middling to poor –

• She trades with a P/E of 24.45 (a grocery store, gang),
• Offers a passable annual yield of 1.34%, but
• Can barely walk due to that gluttonous Price to Book ratio of 8.18 (!).
• Management is also apparently unfazed with the company’s current debt burden – Debt to Equity ratio is obese at 4.92, almost all of which is long term.
• Quarter over Quarter sales fell by 6.5%,
• Q/Q earnings fell by 22.50%,
• Earnings for next year are expected to decline by 0.59%, while
• The five year Earnings outlook sees a decline of 10.57%. according to analysts’ consensus.

So whence the optimism?

As the charts below will show, Albertson’s caught a price goose three weeks ago, directly after they reported earnings AND announced the purchase of Sharon McCollam as the company’s new President and CFO – the selfsame McCollam who turned Best Buy’s struggling e-commerce business around.

Now that’s all fine and dandy, say we, who’ve known Sharon from her college days (and nights) in the pubs of County Cork.

A great lover of fish & chips and the pint, she is, and a great lass, all round.

But is she worth a 50% rise in the stock price in just three weeks?!

Or will this all pass like a damp and misty Irish morning hangover.

Have a look –

This is six months’ worth of ACI chartitude, and it shows quite clearly –

1. An exaggerated post-earnings climb of 50% over just sixteen trading sessions (in red)
2. That opened a wide gap between ACI 25-26 (in purple) that will have to be filled, and
3. Pulled the stock implausibly above its natural growth track (in blue).
4. In the process, RSI shot into overbought territory (in green), where it still remains, and
5. MACD has gone apoplectically asymptotic, and now looks ready to roll over.

In other words, the daily chart is screaming SELL! (or, at least, refrain from buying), and the weekly is offering the same.

Look here –

1. Most damning, technically, is the weekly RSI overbought signal (in green), a death knell for most stocks for whom that second bell tolls,
2. Along with the parabolic rise in price, somewhat more clearly illustrated on the weekly chart (in red).
3. Simple Fibonacci retracement calculations could see the stock fall to $23.80 (slightly below the gap on the daily chart above), and possibly to as low as 19.75 (in blue).

Either way, the decline will be significant.

It’s our firm contention that Albertson’s profited from Wall Street’s disingenuous ‘blessing of low expectations’, where every earnings beat is rewarded exponentially, regardless how many times or how deep analysts cut their forecasts.

So we’re playing it as follows –

A Jew and His Money recommends you consider selling the ACI October 15^th 29/32 CALL spread* for a credit of $1.05 (2.25/1.20) and buying the ACI October 15^th 31 PUT for $2.75.  Total debit on the trade is $1.70.

[*Sell the 29 Call and buy the 32 CALL.]

Rationale: As always, we’re looking to minimize our costs, and the short CALL spread helps us accomplish that.

We pay just $1.70 for a theoretically maximum take of $31.00.

On the loss side, our maximum beating would be $4.70 (difference between CALL strikes plus initial debit), an eventuality we see as part of the null set, considering the current parabolic price action.

Our breakeven on the trade arrives at $29.30 (just $0.55 below the current $29.85 level).

That’s our story, and we’re sticking to it.

The G-d of Israel is good to all who recognize Him.

Give praise and thanks to the Al-mighty!

!אין עוד מלבדו

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew