What the stock market is saying about Albertsons and Kroger

Two years after Kroger and Albertsons announced their controversial plan to merge, investors are sending sharply diverging signals about how they view the grocers’ prospects.

While Kroger’s share price has shot up more than 30% since the start of 2024, Albertsons’ stock market value has sagged over 13% during the same period. During that time, the companies have dealt with legal challenges to their proposed combination from the Federal Trade Commission and the attorneys general of Washington state and Colorado.

The pronounced decline in Albertsons’ share price this year is a clear sign that investors believe that the merger is unlikely to go through — and have concluded the grocery chain is likely to have trouble keeping up with competitors if it has to go it alone — said Arun Sundaram, senior vice president of equity research for CFRA Research.

“Albertsons clearly needs this deal more than I think Kroger does at this point,” Sundaram said.Kroger, on the other hand, “will be just fine” if the merger doesn’t go through, he said.

Sundaram noted that Albertsons’ stock price, which closed at $19.52 on Tuesday, is now below where it was when the companies announced the merger. That means that Albertsons’ existing investors would receive less for their stakes if the transaction is blocked and they look for an alternative exit strategy, he said.

“What I think is happening right now is that investors [think] there might be a few years of rough road ahead for them before the company bounces back,” Sundaram said about Albertsons.

In addition, Albertsons made public unflattering details about its business through testimony at the trials over government efforts to stop the merger, Sundaram said.

Those disclosures — including Albertsons’s revelation that it has been struggling to keep up with competitors — “really painted a bad light” on the company, Sundaram said, noting that Albertsons hasn’t held an earnings call since the merger was announced.

“Before [the trials], we thought Albertsons was doing just fine,” but the court proceedings changed people’s perceptions, he said. “There might need to be some drastic changes in the company before investors become positive” on it again.

Scott Mushkin, CEO of R5 Capital, said that while Albertsons has struggled financially in recent quarters, Kroger’s stock market strength during that same period is partly due to the fact it bought back shares, putting upward pressure on its share price.

Mushkin added that Kroger has managed to generate solid — but not stellar — results as it has sought to complete its merger with Albertsons, giving hope to investors that the company is on sound footing and positioned for growth.

“You’ve basically seen a situation where even though the company’s performed just OK with same-store sales and other things, investors have been willing to look through that because earnings have been better than some feared … even though they’re not growing that fast,” Mushkin said.

Kroger is in a position to continue performing reasonably well if it can’t combine with Albertsons, but would be better off if the grocers join forces, Mushkin said.

“We do worry about the footing of the business if the merger doesn’t go through,” Mushkin said, noting that fusing with Albertsons would give Kroger purchasing scale and resources to invest in capital projects that would improve its ability to keep pace with competitors.

“Walmart and Amazon are spending so much money in automating, and it’s hard for Kroger to match that,” said Mushkin. 

Sundaram said he thinks Kroger’s stock price has lagged this year because the pending merger has distracted investors.

“The merger has taken a front seat for Kroger shares versus how the company is actually doing,” Sundaram said. “If you’re looking at how the company’s just doing, the stock should be, in our opinion, much higher than it is today.”