JP Morgan downgraded Albertsons (ABS) to underweight.
Analyst Stephen Chick says Albertsons has a bloated cost structure that even turn-around initiatives under new management are not able to correct. He says that even in the face of a difficult food retail environment (competition and deflation), he would expect more encouraging same store sales trends given the company's initiatives.
Chick thinks margin pressures, due to lower pricing, will to exacerbate issues going forward. Given that the grocery chain is already at a disadvantage from a cost structure standpoint, and given that top-line initiatives never gained traction, Chick thinks Albertsons' turnaround is jeopardized.
He sees downside to at least $20, and sees $2.07 2002 earnings per share. He also cut the $2.12 2003 estimate to $2.00.