There is rarely a situation in which one can find an asymmetric payoff in an old-economy stock. We think we may have found one.
The company we are talking about is Albertsons. Most people think of Alberson’s as a supermarket, but they are more than that. Albertsons Companies, Inc., operates food and drug retail stores that offer grocery products, general merchandise, health and beauty care products, pharmacy, fuel, and other items and services. It also manufactures and processes food products for sale in stores. As of February 26, 2022, it operated 2,240 stores under various banners, including Albertsons, Safeway, Vons, Pavilions, Randalls, Tom Thumb, Carrs, Jewel-Osco, Acme, Shaw’s, Star Market, United Supermarkets, Market Street, Haggen, Kings Food Markets, and Balducci’s Food Lovers Market, operating in 35 different states. and 1,710 pharmacies, 1,240 in-store branded coffee shops, 402 adjacent fuel centers, 22 distribution centers, and 20 manufacturing facilities, as well as various digital platforms. The company was founded in 1860 and is headquartered in Boise, Idaho.
Albertsons Companies recorded a $773.8 million pre-tax charge ($599.8 million after tax) in its fourth quarter of fiscal 2025 (the 13 weeks ended February 28, 2026) related to an Opioid Settlement Framework. This drove a quarterly net loss of about $481 million (or $0.94 per share), even though the full fiscal year still showed net income of $217.4 million. The charge relates to a framework intended to resolve opioid-related claims brought by states, political subdivisions, and Native American tribes. Albertsons (which operates pharmacies) was among the last major retailers to reach such an agreement; similar settlements by peers like CVS, Walmart, Walgreens, and Kroger had already totaled many billions. Payments under the framework are expected to be spread over about nine years. Adjusted results for the quarter (excluding the opioid charge and other items) were stronger, with adjusted net income of roughly $252 million and adjusted EBITDA of $903 million. Subsequent filings (including the Q1 fiscal 2026 10-Q) confirm the charge was recorded in the fourth quarter of fiscal 2025 and note that the framework remains in early stages, so actual losses could differ if a definitive agreement is not finalized.
We think this is a situation where investors may have overreacted, as the bad news is behind the company, and it can now get on with running a good retail business. A review of the income statement explains our position.
Take away the opioid charge, and the company has normalized earnings of about $1 billion a year. So, going forward, one might expect the company to earn $2.00 to $2.50 per share. With the stock trading at $12.07, the normalized PE is 5-6, which we think is way too low. Grocery stores are ultimate consumer staples, giving them a low beta and, therefore, a low cost of capital. One can expect the EPS to grow with nominal GDP over the long hall wihc we estimate to be 6-7%. This suggests the stock should trade at a PE of 12-16. As a result, we are looking for the stock to double at a minimum and quadruple in the most optimistic scenarios.
We think it makes sense to buy the longest-dated at-the-money option available. Turns out there is a January 2028, $13 strike call. That option is $0.97 out of the money as the stock closed trading at $12.07.
If we are right and the stock returns to its trading range of 2022 to 2026, one could cash in these options for $9.00 or more. At the same time, we do not see much downside to the stock, and we would be surprised if it stayed below $15 before expiration. We have not seen an asymmetric payoff like this in an old economy stock in a long time.
