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UPDATE - UBS initiates coverage on SUPERVALU (SVU) with a Sell; Probably Getting Worse Before It Gets Better

March 13, 2012 11:20 AM EDT Send to a Friend
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Price: $6.92 --0%

Rating Summary:
    1 Buy, 9 Hold, 2 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 0 | Down: 0 | New: 0
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UPDATE - UBS initiates coverage on SUPERVALU (NYSE: SVU) with a Sell rating. PT $5.50.

UBS analyst said, "We estimate SVU has just -11% profit headroom to its fixed charge covenant. Should profits continue to decline at their current trend, we estimate SVU would breach covenants. We think SVU has the right turnaround strategy, but its covenant limits its execution. We believe it is under investing in capex in its retail division (0.8x vs D&A) and is unable to make full investments in price reductions without vendor support. Food retailer turnarounds are gradual. But, the debt covenant is potentially a factor that stops the clock before the turnaround is complete."

UBS feels that the long-term reward could be high for the company and investors, but SVU will have to take action to alleviate constraints by either cutting dividend, issue equity or sell assets...short term pain could very well equal long term gains.

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