With shares of Supervalue Inc. (NYSE:SVU) trading at around $3.52, is SVU an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

It’s not often that earnings play second fiddle to other news, but this is one of those cases. Supervalu announced that it will sell five supermarket chains to Cerberus. The five chains being sold are Albertson’s, Acme, Jewel-Osco, Shaw’s, and Star Market. They are being sold for $100 million in cash and $3.2 billion in debt. Cerberus will also buy up to 30 percent of the remaining Supervalu for $4 per share once the sale is complete. This is a huge deal for Supervalu, which has been struggling to find ways to compete with less-traditional grocers. Food inflation and drought have also brought unexpected challenges.

It should be noted that the short position on Supervalu was 40.30 percent prior to this announcement. Therefore, if the stock continues to climb higher (it closed up 14.14 percent today,) more shorts are going to feel the pressure and cover, which will then lead to even higher stock prices. This is commonly known as a short squeeze, and the odds of it happening are higher when the short position is over 10 percent, let alone 40 percent.

Ah yes… earnings. It’s really a footnote in this situation since the landscape will completely change, but for those who are interested, Q3 EPS came in at $0.08 versus an expectation of $0.06. Revenue came in at $7.81 billion versus an expectation of $7.92 billion. Looking at YoY, earnings were a vast improvement while revenue saw a moderate decline. You can see more on this soon. For now, let’s take a look at some important numbers for Supervalu. They’re not as important as they used to be, but they will give you an idea of where the company is coming from, and the improvements that are likely to be seen.

E = Equity to Debt Ratio Is Extremely High

The debt-to-equity ratio for Supervalu is one of the highest you will find in any industry. It’s an embarrassment. The balance sheet is also abysmal. The good news is that investors love improvement, and with today’s announced deal, improvement is what you will see.


T = Technicals on the Stock Chart Are Mixed

If this article were written yesterday, then the technical on the stock chart would be poor. However, today isn’t yesterday, which Supervalu investors are thankful for. Over the past three years, Supervalu has underperformed Safeway Inc. (NYSE:SWY) and The Kroger Co. (NYSE:KR) by wide margins.



At $3.52, Supervalu is trading above its 50-day SMA and 100-day SMA, but below its 200-day SMA.  

50-Day SMA


100-Day SMA


200-Day SMA



E = Earnings Have Been Poor

Supervalu has been heading in the wrong direction for several years. There is absolutely nothing about annual revenue and earnings that would offer a logical investor confidence. Luckily, changes are being made.



When we look at the last quarter on a YoY basis, we see a decrease in revenue, but an improvement in earnings.





T = Trends Do Not Support the Industry

Traditional grocery stores have been getting hammered. They have lost over 20 percent of market share over the past 25 years. The majority of that lost market share has come in the past 10 years. Supercenters and wholesale clubs seem to be taking over in this area.


Today’s deal makes optimism for Supervalu justifiable. This is a company that just cut an enormous amount of debt and will now have the ability to focus more on a smaller amount of stores. However, Supervalu still has a long way to go, and it’s difficult to see a scenario where there will be sustained growth.

Supervalu is currently a WAIT AND SEE.

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