Supervalu Isn't Getting The Credit It Deserves

While SUPERVALU INC (NYSE:SVU)'s wholesale unit seems to be underappreciated, the company’s retail operations could get a boost from easing deflationary pressures, RBC Capital Markets’ William Kirk said in a report. He added that real estate value provided “hypothetical engineering upside.”

Kirk upgraded the rating on the company from Sector Perform to Outperform, while maintaining the price target at $6.

Wholesale Unit Underappreciated

The wholesale unit, which represents the majority of Supervalu’s business, is “not getting credit for its customer win pipeline,” Kirk noted, estimating the wins to contribute $1.1 billion in FY 2018 over 2017. He further mentioned that the estimates reflected only $857 million, while consensus was at just $682 million.

The analyst mentioned that the company’s core wholesale business was delivering healthy growth and business wins due to:

1. Mark Gross’s relationships.
2. Competitors focusing on the recently completed merger between Ahold and Delhaize Group SA (NYSE:DEG).
3. Large customer loss was “fully lapped” in Q4.

Easing Deflation

U.S. Agricultural Commodity Exports have recently been strong and excess supply appears to be depleting. Kirk projected inflation by May/June.

“With easing deflation/eventual inflation, a very strong wholesale win pipeline, and under-appreciated real estate portfolio, we believe SVU is very attractive,” Kirk commented.

At last check, shares of Supervalu were up 12.28 percent at $3.75.

Are Low Earnings Expectations For Delta Air, Supervalu An Early Warning About Q4 Reports? Benzinga's Top Upgrades, Downgrades For March 23, 2017 ________ Image Credit: Kenneth Allen [CC BY-SA 2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons