Ahold Delhaize: Unlocking Value Through U.S. Turnaround and Margin Resilience

The grocery sector faces a familiar challenge: navigating margin pressures in a disinflationary environment while investing for long-term growth. Yet Ahold Delhaize (OTCMKTS:AHDFY) stands out as a potential outperformer, with Bank of America (BofA) reaffirming its Buy rating and raising its price target to €40, implying a 15% upside from current levels. This optimism hinges on the execution of its "Growing Together" strategy, which targets a 9% CAGR in EPS over five years, even as 2025 marks the peak of margin pressure. Here's why investors should pay attention.
The U.S. Market Turnaround: A Key Catalyst
Ahold Delhaize's U.S. operations, including the critical Stop & Shop chain, have long been a source of underperformance. But BofA highlights a turning point: reinvestment efforts are bearing fruit. Q1 2025 results showed 3.3% comparable sales growth, surpassing consensus estimates by 120 basis points, driven by improved volume trends and pricing discipline. Stop & Shop, which faced structural challenges, is now benefiting from $1 billion in annual capex targeting store modernization and e-commerce integration.

BofA's analysis emphasizes that U.S. margin pressures are manageable, with price impacts capped at 20 basis points in 2025. This reflects the company's ability to balance reinvestment (e.g., store renovations, online infrastructure) with cost discipline. Meanwhile, the online channel—still in its early stages—will become a “tailwind” by 2026, as scale economies reduce fulfillment costs and customer retention improves.
Margin Resilience: A 2025 Peak, Not a Problem
While 2025 is the peak year for margin pressure, BofA expects stabilization thereafter. The broker points to two critical factors:
1. Shareholder returns: Ahold's €1 billion annual buyback program and rising dividends (totaling €2 billion annually, or 8% of market cap) are creating value even as margins adjust.
2. Operational leverage: The company's 4% operating margin target for 2025 is achievable, with EBIT upgrades of 2-3% factoring in better-than-expected U.S. performance.
Why the Market Underestimates Ahold's Potential
The €40 target reflects BofA's belief that Ahold's reinvestment payoff is underappreciated. Current consensus estimates for 2025 EPS are €1.30, but Ahold has beaten estimates 75% of the time over the past year—outpacing its industry's 57% rate. The “Growing Together” strategy is not just about sales growth; it's about systematic margin recovery.
Take the Stop & Shop turnaround: While its recovery was initially seen as risky, lower-than-expected structural costs (e.g., labor, supply chain) have reduced execution risks. Similarly, the U.S. disinflation environment—which hurts peers reliant on impulse sales—benefits Ahold's focus on essential groceries and loyalty programs.
Risks and the Case for Caution
No investment is without risks. Ahold's margin pressures could prolong if inflation unexpectedly rebounds, or if U.S. competitors accelerate price wars. However, BofA's 20 basis point price impact estimate suggests these risks are already priced in.
The Investment Thesis: Buy on Dip, Target €40
Ahold's current valuation of €35.59 (as of June 2025) leaves room for upside. With €2 billion in annual shareholder returns and a 2026 EPS target of €1.40, the stock trades at a 12.5x 2025 P/E, below its five-year average. The 9% EPS CAGR goal is achievable if U.S. margins stabilize and online profitability materializes.
Final Verdict: A Grocery Sector Winner
Ahold Delhaize is a contrarian play on grocery sector stabilization. Its disciplined reinvestment in the U.S., coupled with a shareholder-friendly capital allocation policy, positions it to outperform peers once margin pressures ease. BofA's Buy rating and €40 target are well-supported—this is a stock to buy on dips, with a long-term horizon.
Investors seeking exposure to a grocery player with both defensive stability and growth catalysts should consider Ahold Delhaize. The path to 9% EPS growth is clear—if execution continues as planned, the stock could deliver 15-20% returns over the next 12-18 months.
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