RBC Cuts Target on SUPERVALU (SVU)

RBC Capital Analyst, William Kirk, is cautious on SUPERVALU (NYSE: SVU) as it heads into tougher comps at the same time that basket inflation is decelerating and traffic is not picking up. He reduced ID sales at SaveA-Lot to -2% (from -1.5%) and maintains a drop of -4.0% at Retail. The lack of catalysts causes him to drop his price target to $8 from $9. The firm maintained a Sector Perform rating.

Consensus estimates (-1.9% ID sales at SaveA-Lot and -3.6% ID sales at Retail) call for a two year acceleration from last quarter's trends. Since last quarter Total Food at Home CPI has continued its moderation. The wholesale business also remains challenged, losing primary supplier status at Gordy's, which has 21 stores in Wisconsin, and experiencing the Haggen bankruptcy.

SUPERVALU announced the planned IPO of its SaveA-Lot unit. We consider this announcement an indication that a simple asset sale to a financial or strategic party did not materialize. SUPERVALU stockholders will own at least 80.1% of the outstanding shares of Save-ALot. The separation will be completed by way of pro-rate distribution of shares of Save-A-Lot to SUPERVALU stockholders.

The analyst's earnings estimate for the quarter is a penny below consensus at $0.15. The price target is based on a DCF that assumes: 1) 3% annual revenue growth, 2) peak EBIT margins of 3.1%, 3) terminal growth of 3% and 4) WACC of 9.1%.

For an analyst ratings summary and ratings history on SUPERVALU click here. For more ratings news on SUPERVALU click here.

Shares of SUPERVALU closed at $6.09 yesterday.

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