SUPERVALU (SVU) Could Return Multiples Back to Investors - Barron's
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SUPERVALU, Inc. (NYSE: SVU) shares are trading higher today, following a positive from Barron's over the weekend, who sees SVU finally putting the pieces together to return value to shareholders.
Barron's points out the leveraged buyout of competitor Albertson's in 2006, laying about $6 billion in new debt on the balance sheet. Additionally, SVU has been slow to cut prices amid a flailing global economy, causing a reduction in same-store sales over the last ten quarters.
Analysts flogged the company following a weak Q311 earnings report and tepid outlook for the balance of the year. However, Barron's notes that there are several key points to make about a potential turnaround for the grocery giant. First, positive cash flow has allowed the company to pay down its debt load by $1.7 billion over the last two fiscal years, and put $700 million per year in CapEx.
CEO Craig Herkert has also taken steps to sell several strategic underperforming assets, unloaded about 100 stores, and reduced headcount by 10%. Overhead has also decreased from $8.7 billion to $7.6 billion under Herkert.
Other notable items include the company's wholesale grocery business, which Barron's notes is impervious to nipping by discounters, and contributes about $300 million per year to operating earnings.
Their Save-A-Lot division is also insulated from major competitors, like Wal-Mart (NYSE: WMT), which have little penetration in densely populated metropolitan areas. Save-A-Lot sees competition mostly from dollar and ma-and-pa stores. SUPERVALU is investing heavily in Save-A-Lot, which has seen stronger same-store sales numbers when compared with their other segments. SUPERVALU is planning to double Save-A-Lot's footprint over the next five-years.
SUPERVALU's P.E is also solid, at 6.6x of FY10 EPS estimates, compared with 11.3x for Safeway (NYSE: SWY) and 11.1x for Kroger (NYSE: KR).
How much higher can SUPERVALU go? SVU currently has an enterprise value of $8.7 billion [market cap of $1.6 billion and net debt of $7.1 billion], but Barron's says that SVU could improve that with the reduction of up to another $1 billion in net debt, placing value on the shares of about $12.25 per share, a 46% premium to today's intraday trading price.
Also, should SUPERVALU report steady to increasing sales numbers, shares could see about 6x the EBITDA forecast of $1.87 billion. Equity value would be $5 billion, about $23 per share.
To get their, SVU said that they are lowering the prices across the board, especially in several key markets where they acknowledged that prices were too high.
SVU shares are 2.5% higher this morning.
Barron's points out the leveraged buyout of competitor Albertson's in 2006, laying about $6 billion in new debt on the balance sheet. Additionally, SVU has been slow to cut prices amid a flailing global economy, causing a reduction in same-store sales over the last ten quarters.
Analysts flogged the company following a weak Q311 earnings report and tepid outlook for the balance of the year. However, Barron's notes that there are several key points to make about a potential turnaround for the grocery giant. First, positive cash flow has allowed the company to pay down its debt load by $1.7 billion over the last two fiscal years, and put $700 million per year in CapEx.
CEO Craig Herkert has also taken steps to sell several strategic underperforming assets, unloaded about 100 stores, and reduced headcount by 10%. Overhead has also decreased from $8.7 billion to $7.6 billion under Herkert.
Other notable items include the company's wholesale grocery business, which Barron's notes is impervious to nipping by discounters, and contributes about $300 million per year to operating earnings.
Their Save-A-Lot division is also insulated from major competitors, like Wal-Mart (NYSE: WMT), which have little penetration in densely populated metropolitan areas. Save-A-Lot sees competition mostly from dollar and ma-and-pa stores. SUPERVALU is investing heavily in Save-A-Lot, which has seen stronger same-store sales numbers when compared with their other segments. SUPERVALU is planning to double Save-A-Lot's footprint over the next five-years.
SUPERVALU's P.E is also solid, at 6.6x of FY10 EPS estimates, compared with 11.3x for Safeway (NYSE: SWY) and 11.1x for Kroger (NYSE: KR).
How much higher can SUPERVALU go? SVU currently has an enterprise value of $8.7 billion [market cap of $1.6 billion and net debt of $7.1 billion], but Barron's says that SVU could improve that with the reduction of up to another $1 billion in net debt, placing value on the shares of about $12.25 per share, a 46% premium to today's intraday trading price.
Also, should SUPERVALU report steady to increasing sales numbers, shares could see about 6x the EBITDA forecast of $1.87 billion. Equity value would be $5 billion, about $23 per share.
To get their, SVU said that they are lowering the prices across the board, especially in several key markets where they acknowledged that prices were too high.
SVU shares are 2.5% higher this morning.
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