Barclays Upgrades Smart & Final Stores On 'Unique' Opportunity

• Smart & Final Stores Inc SFS shares are down 13 percent in the last six months, after rising to a high of $18.69 on April 7.
• Barclays’ Meredith Adler upgraded the rating on the company from Equal-Weight to Overweight, while raising the price target from $18 to $19.
• The acquisition of stores from Haggen’s offers Smart & Final Stores a unique opportunity to expand its presence in the core California markets, Adler noted.

Smart & Final Stores plans to purchase 27 stores in South and Central California and one in Las Vegas from Haggen’s Holdings LLC for $56 million by using cash and revolving borrowings. The company intends to convert the acquired stores into the “Smart & Final Extra! Banner” over a period of three quarters, starting 4Q15.

Analyst Meredith Adler believes that the $2 million per store, excluding leases, being paid by Smart & Final Stores is a “good price” for stores located mostly in California.

Smart & Final Stores will be a “Stalking Horse Bidder” in the court-supervised sale of assets and thus will have the right to top the bid of a higher bidder or be entitled to a break-up fee if the other higher bid is approved.

Terming the purchase as a “unique opportunity,” Adler mentioned that it will boost Smart & Final’s Extra! presence in its core California markets by 25 percent. The analyst pointed out that it will take the company several years to improve the average sales and profitability of the acquired stores, thus implying that near-term benefits will be modest.