Wall Street Anticipates Deal-Making Boost Following Election

With Donald Trump set to return as President of the United States next year, Wall Street expects more deals to move forward under a less strict regulatory environment. 

In recent years, mergers and acquisitions have slowed somewhat, not only from stricter regulation but also due to elevated interest rates and surging company valuations. Now, with rates starting to lower and a more market-friendly president set to take office, we could see the floodgates open.

Why Do We Care?

In light of the potentially lighter regulatory environment, we’re eyeing potential stocks that could benefit.

First, some background.

When acquisitions happen, it’s not uncommon for the acquiring company’s stock to fall in the short term and the acquired company’s share price to rise. As a result, some traders focus on these types of transactions to profit from the transaction.

Potential Deal We’re Eyeing

While there are likely many deals that could be incentivized to move forward under the new administration, one in particular that we like is Kroger Co.’s (NYSE: KR) desired acquisition of Albertsons Companies Inc. (NYSE: ACI).

So, is ACI worth watching in anticipation of a more favorable environment? Let’s take a look.

The grocery store chain operator has a few things going for it, even without the possibility of a massive tailwind in the form of an acquisition.

Image: ACI’s Zen Score (source: WallStreetZen)

With a Zen Score of 33, Albertsons is roughly in line with the industry average. This means the grocer enjoys reasonable fundamentals based on a due diligence check that looks at 38 unique factors.

• ACI is good value based on its earnings relative to its share price (11.18x), compared to the US Grocery Stores industry average of 18.49x and the US market average of 25.64x.
• ACI's debt relative to shareholder equity (7.78) has decreased or remained constant compared to 5 years ago (9.53).
• ACI's Return on Equity is forecast to be high in 3 years (45.78%); analysts are confident in the firm's ability to efficiently generate return on equity.

Image: Aggregate analyst rating (source: WallStreetZen)

While it’s not an overall Strong Buy rating, ACI still enjoys an average Buy rating from the analysts that cover the stock on WallStreetZen. At the upper end of the 12-month forecast, Joe Feldman, a top 1% analyst with Telsey Advisory Group, has targeted a price of $27.25, an over 40% appreciation for its current value. (See all ratings for ACI here.)

The Bottom Line

While ACI is already a solid value with strong fundamentals and a favorable analyst outlook, the possibility of a lucrative acquisition deal makes it an attractive addition to your WallStreetZen watchlist. For investors eyeing stocks with growth potential tied to strategic acquisitions, ACI could present a potential promising opportunity in the months ahead.

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