Down, down, down Supervalu (SVU) goes and where it stops, no one knows. Not even Goldman Sachs, which cut Supervalu’s shares to Sell from Neutral, though it does have a guess.
Goldman Sachs analysts Stephen Grambling and Christopher Prykull explain their thinking:
SVU shares are up 183% year-to-date (vs. S&P 500 +26%) as management's initiatives have slowed the top-line deterioration at the company's retail banners and Save-A-Lot. As the market has started to factor in stable-to-improving EBITDA on a highly levered equity base, the stock has re-rated from 4.5X EV/EBITDA to 6.1X EV/EBITDA. With the shares now trading above the historical average and roughly in line with peers, we expect future downward revisions to consensus estimates will likely drive a rerating of the shares to a more normalized level.
While we have been encouraged by the new management team's success in effecting change, we believe cuts to food stamps (SNAP benefits), potential reductions to the transition service agreement, and encroaching competition will likely overwhelm operational improvements…
Shares of Supervalu have dropped 8.3% to $6.31 at 2:59 p.m., within spitting distance of Goldman’s $6 target price, while competitors Family Dollar Stores (FDO) has gained 0.2% to $70.16, Dollar General (DG) has fallen 0.4% t0 $59.02, Dollar Tree (DLTR) is off 1% to $59.33 and Wal-Mart (WMT) is little changed at $79.19.
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