Buyers May Eye SUPERVALU (SVU) as Cheap Takeover Target
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Price: $6.95 +3.89%
Overall Analyst Rating:
NEUTRAL (= Flat)
Dividend Yield: 7.6%
EPS Growth %: -136.8%
Overall Analyst Rating:
NEUTRAL (= Flat)
Dividend Yield: 7.6%
EPS Growth %: -136.8%
Trade SVU Now!
SUPERVALU (NYSE: SVU) shares are higher on the session Wednesday following speculation that the discount grocer might just be too cheap for private-equity to ignore.
According to data compiled by Bloomberg, the recent drop in SUPERVALU stock puts it at just 3.9 times EBITDA, which is the cheapest valuation of all U.S. food retailers and is the lowest its been since 1990.
Valued as much as $10 billion just five-years ago, the financial meltdown and fallout caused many customer to turn to discount chains such as Wal-mart (NYSE: WMT), leading SUPERVALU's market cap to dwindle by 92 percent. Further, analysts see SUPERVALU with another year of sales declines in 2012, though the company will still be turning a profit for its fiscal year.
Potential investors will take a hard look at SUPERVALU's debt position, currently at about seven times its market value. However, SUPERVALU also boasts free cash flow yield 10 times better than peers at 45 percent.
So what does it all come down to? According to Bloomberg, citing a Barclays analyst, a potential buyer could dole out a 50 percent premium to today's stock price and still garner a 40 percent or better return on the investment. Potential moves to maximize return would be trimming store-branded products and selling some real estate. Both of those would cut overhead and help SUPERVALU pay down outstanding debt just that much faster. Firms might be able to cut or negotiate current debt obligations to enhance the potential return.
SUPERVALU also has about $1 billion in pension and retirement liabilities.
But, for the right buyer looking to invest both time and money, SUPERVALU might be the best grocery value around.
Shares are 2.6 percent higher Wednesday afternoon.
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According to data compiled by Bloomberg, the recent drop in SUPERVALU stock puts it at just 3.9 times EBITDA, which is the cheapest valuation of all U.S. food retailers and is the lowest its been since 1990.
Valued as much as $10 billion just five-years ago, the financial meltdown and fallout caused many customer to turn to discount chains such as Wal-mart (NYSE: WMT), leading SUPERVALU's market cap to dwindle by 92 percent. Further, analysts see SUPERVALU with another year of sales declines in 2012, though the company will still be turning a profit for its fiscal year.
Potential investors will take a hard look at SUPERVALU's debt position, currently at about seven times its market value. However, SUPERVALU also boasts free cash flow yield 10 times better than peers at 45 percent.
So what does it all come down to? According to Bloomberg, citing a Barclays analyst, a potential buyer could dole out a 50 percent premium to today's stock price and still garner a 40 percent or better return on the investment. Potential moves to maximize return would be trimming store-branded products and selling some real estate. Both of those would cut overhead and help SUPERVALU pay down outstanding debt just that much faster. Firms might be able to cut or negotiate current debt obligations to enhance the potential return.
SUPERVALU also has about $1 billion in pension and retirement liabilities.
But, for the right buyer looking to invest both time and money, SUPERVALU might be the best grocery value around.
Shares are 2.6 percent higher Wednesday afternoon.
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