10:56 AM EDT, 10/14/2024 (MT Newswires) -- Albertsons ( ACI ) is expected to report higher fiscal second-quarter identical sales growth than previously estimated and beat Wall Street estimates for the metric, RBC Capital Markets said in a Monday note.

RBC now forecasts the grocery store chain to post an identical store sales increase of 1.6% for its fiscal second quarter versus the brokerage's prior estimate of 1.3%, which is also Wall Street's consensus for the metric, according to the firm. The raised projection is supported by RBC's proprietary state-weighted Circana data analysis.

In July, Albertsons ( ACI ) said its fiscal first-quarter identical sales increased 1.4%.

Albertsons ( ACI ) has "outcomped" Kroger ( KR ) in eight of the last 10 quarters by an average of roughly 160 basis points, implying that the company's identical sales will be closer to 2%, RBC analyst Steven Shemesh wrote in the note.

RBC lowered its forecast for Albertsons' ( ACI ) gross margin to 27.6%, representing a contraction of about 10 basis points, amid expectations for a continued pharmacy mix-shift headwind, potential pricing pressures, and tougher productivity comparisons. The brokerage now anticipates the grocery store chain's adjusted earnings before interest, taxes, depreciation and amortization to be at $882.6 million versus its previous outlook for $900 million.

In October 2022, Kroger ( KR ) agreed to acquire Albertsons ( ACI ) in a roughly $24.6 billion deal, including net debt of $4.7 billion. However, the US Federal Trade Commission in February sued to block the planned merger, citing competition concerns.

"With a trial decision likely in the next few weeks, (arbitrage) investors have been quoting a break price around $17, and we sense that fundamental investors would feel compelled to step in around the $16 level," RBC said.

The brokerage reiterated its price target of $23 on Albertsons ( ACI ) stock, based on a 35% chance of the deal closing and a 65% probability of its termination. RBC has an outperform rating on Albertsons' ( ACI ) shares.

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