Albertsons stock is worth buying at $25 when it comes public

CNBC’s Jim Cramer on Wednesday said that Albertsons, the U.S. grocery operator making its third IPO attempt, is worth owning if investors can get the stock at the right price.

Albertsons, which owns Albertsons, Safeway, Acme and Shaw’s supermarkets in dozens of states, plans to raise up to $1.32 billion when it goes public Thursday. A group of stockholders is offering almost 66 million shares to the public in the $18 to $20 price range.

“I think that Albertsons could be worth owning” but should be bought at “no more than $24 to $25,” the “Mad Money” host said. “It’s definitely not best of breed, but it’s not garbage either.”

Cramer is recommending the stock after he saw the grocery retailer take several steps to address its debt load, bring in a new chief executive and rehab its stores and operations.

He noted that Albertsons improved its balance sheet, where debt was cut from almost $12 billion in 2015 to $8.7 billion; installed a new CEO in Vivek Sankaran, who previously headed PepsiCo’s food business in North America; and added delivery services at most of its roughly 22,520 stores.

Albertsons failed in their public offerings in both 2015 and 2018. The latter attempt was put off due to suboptimal market conditions.

As the ongoing coronavirus pandemic has given grocery stores a lift, Cramer is convinced that the third time could be a charm now that the Idaho-based parent company is a “better company” than it once was.

“All these moves are working. After years of stagnating, Albertsons’ sales grew by more than 3% last year” including “2% same-store sales growth. Big improvement over where they were,” he said.

Some concerns still linger for the stock expert. Cerberus Capital, who took the grocery operator private more than a decade ago through a leveraged buyout, will retain control of the company on the public market, watering down the power public shareholders will have in directing the business. Furthermore, the grocery industry is full of competition and their sales will come back down to earth after Covid-19 is solved.

“This Albertsons deal may be better than you’d expect, but I think the best part of the IPO cycle may have already come and gone, along maybe with a lot of this market and so I’m telling you exercise with caution,” Cramer said.

Should Albertsons IPO on the high end, the company would be valued at $11.61 billion, considering outstanding shares and certain convertible preferred stocks. BofA Securities, Goldman Sachs, J.P. Morgan and Citigroup are the lead underwriters for the offering.

Underwriters have an option to buy another 9.9 million shares. Should that option be tapped, the offering could go for about $1.5 billion.

-Reuters contributed to this report.

Disclosure: Cramer’s charitable trust owns shares of PepsiCo.

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