Albertsons stock was downgraded on Wednesday.
Bing Guan/Bloomberg
Many retailers have been caught up in the epic short squeeze roiling markets at the moment, and food stocks are no exception: Albertsons stock got hit with a downgrade from Wells Fargo on Wednesday.
Analyst Edward Kelly cut his rating on Albertsons (ticker: ACI) to Equal Weight from Overweight, while maintaining a $19 price target. The move, however, hasn’t done much to dent the stock.
Kelly cites some fundamental issues with the stock: He thinks that pent-up demand will lead to a surge in dining out whenever the U.S. does reach mass vaccinations later this year, which will pressure grocery store sales and could lead them to sacrifice recent gains in market share. “Albertsons may be particularly impacted given it has disproportionately benefited from exposure to hard-hit markets and lower productivity relative to Kroger (KR),” he notes.
Supermarkets in general are tough propositions for long-term investors, given razor-thin margins and increasing competition. Add to that the shift to digital shopping—and difficult comparisons looming, given the surge of 2020 pantry-stocking—and Kelly doesn’t see Albertsons or others doing much to change this perception in the near term.
That said, he is also concerned with the stock’s near-term price momentum, and is unwilling to move his price target higher, seeing the risk-reward largely balanced here.
Just under 30% of Albertsons’ shares available for trading (or the “float”) is sold short—when investors borrow and then sell shares, betting on price declines—making it a prime candidate to get caught up in the short squeeze that has seen shares of companies from GameStop (GME) to Bed Bath & Beyond (BBBY) soar. A short squeeze is when investors rush to reverse those bets that a stock will fall, sending the shares rapidly higher. Stocks where bears are heavily involved have enjoyed major rallies recently, as investors with short positions throw in the towel to cap their losses.
That phenomenon may also be behind Albertsons’ recent move, given its more than 13% year-to-date gain and the fact that it is up more than 2% today—to $19.92 at recent check—despite the downgrade.
The same is likely for United Natural Foods (UNFI), which is up 1% to $31.62 in recent trading. About a quarter of its float is sold short, and the stock has notched a triple-digit gain since the start of the year. Kelly downgraded the shares to Underweight from Equal Weight today, with a $17 price target. He cites the stock’s big rally, along with the expected away-from-home eating surge that gives him pause about Albertsons stock.
Write to Teresa Rivas at [email protected]
