Is SuperValu A Buy? (SVU)
Shares of SuperValu Inc. (NYSE: SVU) have gained over 35% in the last three months, including 2.28% today alone. The stock is currently trading at $17.52. It appears as if this company may be experiencing a major turnaround which could result in significant gains in SuperValu's (SVU) equity. Standpoint Research put out a Buy rating on this stock on January 19, and the firm has a 2011-2012 price target of $27 on the shares. So what are the factors that make this security attractive at current levels, despite the company's rather poor recent historical performance (the stock is down 47% in the last 5 years)?
According to Standpoint, the company has become more efficient and effective in serving their customers. They have shifted away from a combination of high prices and scattered discounts in order to provide competitive prices across the store. SuperValu has also embarked on a strategy whereby they have gotten rid of less popular products and replaced them with private labels in order to provide price breaks. The company is on track to complete this strategic plan within the next 12 to 18 months. This will result in less variety at the stores, but lower prices and significant operational benefits.
SVU is focusing on lowering their debt. To this end, the company has reduced its debt burden by $1.6 billion since 2006. SuperValu has also recently added to its management team with three new hires, including two Vice Presidents, and a President of SVU banner company Cub Foods.
In addition to the strong fundamental case for SVU shares, buyout rumors have been swirling around the company. In fact, bullish options trades have surged to record levels. It is inadvisable to buy the shares of any company based solely on rumors of a takeover, but in this case, with a strong fundamental thesis intact, these rumors should be viewed as icing on the cake. If a deal does come to fruition it will mean a quick reward for new shareholders of SVU, but if not, the stock still offers significant intrinsic value at current levels.
