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UPDATE: Credit Suisse Reinstates Roundy's, Still Cautious on Core Valuation

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In a report published Friday, Credit Suisse analyst Edward Kelly reinstated coverage on Roundy’s Supermarket (NYSE: RNDY) with a Neutral rating and raised target price from $7.00 to $10.00.

According to the report, the move followed the company’s purchase of 11 stores in Chicago from Safeway for $36M on December 2.

“While we view the acquisition and shift in strategy toward growing Mariano's constructively, the division's contribution to EBITDA is still small, and the negative momentum/structural challenges of the core supermarket business (still ~85% of sales today) remain a large concern,” the report said. “With the stock rallying on the deal, we find it difficult to recommend the name at this level. Our new target price reflects improved optimism regarding Mariano's, but continued caution on the core valuation.”

Some key points from the review included:

- ”The discontinuation of the company's dividend is a prudent and appropriate step, in our view, as the increased investment in Mariano's is management's best opportunity to bolster longer-term growth.”
- ”We have updated our model for the impact of the acquired Dominick's stores, and while the picture for 2015 is now brighter than previously expected, we maintain our Neutral rating given our concerns around RNDY's core operations.”

RNDY closed Thursday at $10.40.

Posted-In: Credit Suisse Edward KellyAnalyst Color Initiation Analyst Ratings


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