Supervalu: An Aptly Named Stock
Ockham Research submits:
The grocery store business has been fiercely competitive in the last few years with consumers eating out less during the recession. Today, Safeway (SWY) announced that it would likely miss current fiscal 2010 earnings estimates mainly because of lowering prices to better compete against industry rivals. This more conservative guidance for Safeway was not at all unexpected though as the stock has regained much of the losses in afternoon trading, but we believe there is a much more attractive stock than Safeway even in an industry where margins are squeezed and competition from warehouse retailers threatens.
Supervalu (SVU) is one of the largest national grocery store chains and operates under various brand names including Albertsons, Shaw’s and Save-A-Lots. SVU stock has greatly underperformed the market over the last year thanks to industry competition and food price deflation, and the comparably high debt load has caused Supervalu to lag many of its closest competitors. However, we think there are reasons to believe that better times are indeed ahead. For example, in January SVU reported fiscal third quarter earnings results
that showed EPS of $.46 easily topped estimates of $.40 despite underachieving sales. The company was able to maintain profit margins of 22.3%, which is of extreme importance with food price lower than they were a year ago. One of the ways that they are achieving those margins is through better inventory management and reducing the number of items in stores to reduce costs. Strict inventory management is essential to grocers and should show up in the bottom line results.
Investing, Long Term Investment, stock market | admin March 3, 2010
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