It’s hard to imagine a company taking their business public with an Initial Public Offering (IPO) at the height of a global pandemic and recession, but that doesn’t mean that every IPO in 2020 is doomed. In fact, you might even consider a company that moves forward with an IPO at this time to be quite confident in its business model and financial future. Buying into an IPO can be a risky endeavor since there is a lack of trading history and because they are usually young companies, but that’s not the case with a business that is scheduled to go public this week.
Grocery store chain Albertsons plans to begin trading this week with a price range between $18-$20 dollars per share on the NYSE. The IPO will generate up to $1.3 billion through the issuance of 65.8 million shares of Class A common stock. This is a company that tried to IPO back in 2015 and in 2018 but decided to put it off due to shareholder pressure and poor market conditions. It looks like its IPO debut will finally happen and that the business has some strong momentum behind it. Here are 3 reasons why Albertsons stock is worth a look.
A Leading Food Retailer in the U.S.
The opportunity to own one of the leading food retailers in the United States is one of the main reasons why this IPO is picking up steam among investors. The company owns multiple brands, including Albertsons, Safeway, Vons, Acme, Pavilions, Randalls, Tom Thumb, and Star Market. Albertsons estimates that it holds a No. 1 or No. 2 market share in 68% of the metropolitan areas that it has stores in. That means investors are getting shares of an established grocery giant that already has a strong grip on its market.
Traditionally, IPOs occur for companies that are young and growing, but that is not the case with Albertsons. It opened its first store in Boise, Idaho in 1939 and has been steadily growing its presence ever since to over 2,252 retail stores. If you decide to buy shares of Albertsons, you know you are getting a well-known brand with a loyal and established customer base of 33 million weekly customers.
Grocery Glory Days
Another thing that Albertsons has working in its favor is the fact that grocery stores are benefitting greatly from the current pandemic situation. We’ve already seen positive growth in grocery stocks like Kroger (NYSE:KR), and that trend should hold true for Albertsons as well. Last year, Albertsons sales rose to $62.5 billion from $60.5 billion in 2018. That growth is likely continuing as a result of stay-at-home orders and more people than ever before cooking at home. The pandemic has already been good to Albertsons stores, as the company stated that is increased same-store sales by 30% in the first 12 weeks of FY 2020.
Since home delivery and online grocery shopping has quickly become a growth driver for grocery chains, investors should be happy to hear that Albertsons offers home delivery in 12 of the top 15 U.S. markets.
Dividends are often rare for a company’s IPO, but that is not the case with Albertsons. The company plans to pay a quarterly dividend on its common stock equal to 2.5% of the IPO price if you assume a $19 dollar per share price. The fact that this company is able to offer dividends shows investors that they are confident in their ability to generate consistent revenue and reward investors with a decent dividend yield.
It’s important to note that the first few weeks of trading for an IPO can be volatile, which means that investors might be able to lock in an even higher dividend yield should the stock take a sharp downturn in its first few sessions of trading. This is something for dividend investors to look out for, particularly if they are sold on Albertsons business model and positive momentum.
The fact that Albertsons already has a solid brand and established customer base makes its upcoming IPO and intriguing prospect for investors that are interested in adding exposure to the grocery industry. There are certain risks involved with investing in Albertsons, such as its high debt load of $8.7 billion and the risk of decreasing sales should the pandemic subside sooner rather than later, but that doesn’t mean this IPO won’t be a success. Keep an eye out for Albertsons IPO in the coming days but be careful about buying during the first few days of trading as they can often be quite volatile for new stocks.
Companies Mentioned in This Article
7 Tech Stocks to Buy Now For a Post Coronavirus Economy
The Covid-19 pandemic has created a new “tech wreck”. But unlike the broad selloff at the end of 2018, this downturn has been more selective. Some stocks that looked like they were a little overbought have seen their share prices lowered.
In some cases, there was a legitimate reason for this. However, in other cases, it was likely a result of profit-taking disguised as something else. That’s the nature of a crisis. It gives investors the cover to do what they wanted to do anyway. But once investors start to sell, it can trigger a herd mentality.
And that’s when savvy investors start to look for opportunities. Because as Warren Buffett famously said, “Be greedy when others are fearful.” Tech stocks will lead the way back when the pandemic is over. Because if there’s one thing this moment in time is teaching us, it’s that we’re not going to be less dependent on technology. Businesses aren’t going to be doing less digital advertising. Consumers aren’t going to do less e-commerce.
But the fundamentals still matter. That’s why one of the common traits of many of these companies is that they have rock-solid balance sheets.
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