Cantor Fitzgerald Initiates Coverage on Food Retail/Wholesale Stocks With Neutral to Negative Bias; SVU Lone 'Buy'

Cantor Fitzgerald initiates coverage on four Food Retail/Wholesale stocks with a mainly Neutral to Negative bias. Last year comparisons, higher fuel and commodity costs, along with continued competition from the likes of Wal-Mart, seem to be a recurring theme.

Cantor starts coverage on Safeway (NYSE: SWY) with a Sell. PT $16

The analyst said, "...Going forward, we expect comparisons will be especially unfavorable in FY:12 for fuel and overall vendor support. In addition, while Safeway has set a very audacious shrink reduction target of $300 million by next year, Safeway's exposure to multi-employer pension (MEPP) also represents a growing source of earnings risk, in our view."

Cantor starts Sysco (NYSE: SYY) with a Hold. PT $29.

"...SYY senior management have indicated that its financial performance should be evaluated based on volume trends and gross profit dollar growth. On that basis, we are neutral on the stock at this time."

Kroger (NYSE: KR) with a Hold. PT $24.

"...While Wal-Mart's (NYSE: WMT) increased store development in Southern CA remains a concern, our channel checks confirm that Kroger is more than maintaining its share of industry growth across almost all of its major markets. After stripping out inflation, Kroger's underlying volumes trends are trending negative. In FY:11, Kroger's reported earnings also point to a slightly negative trend at the operating income level (with EPS growth being driven largely by share buybacks and a lower tax rate). In addition, without the fuel tailwind, the reported earnings would materially lower. We expect fuel margin comparisons to get more challenging, going forward."

However, Cantor did initiate SUPERVALU (SVU) with a Buy rating. PT $10 (almost 40% above current price of $7.22)

"...The longer-term structural issues remain, but for now, we are constructive on the stock based on a combination of: i) an improved balance sheet; ii) highly achievable FY:12 earnings guidance; iii) an attractive dividend yield of 4.8%; and iv) a very compelling valuation, with shares trading at a FY:12 PE multiple of less than 6x and an EV/EBITDA of 4x over the same period."

Looking at the 1- & 2-year charts, KR is the only stock in positive territory. SYY and SWY are around breakeven, SVU is down almost 40%. Interesting that Cantor Fitzgerald's only Buy rating stock in the group...is SVU.

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