Stock Analysis: SUPERVALU INC (SVU)

Linked here is a PDF copy of my detailed analysis of SUPERVALU INC (SVU) (alt.1, alt.2). Below are some highlights from the above linked analysis:

Company Description: SUPERVALU INC. is one of the largest U.S. food wholesalers, this company is also one of the biggest supermarket retailers in the U.S.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

SVU is trading at a discount to 1.) and 3.) above. Since SVU's tangible book value is not meaningful, a Graham number can not be calculated. If I exclude the high and low valuations and average the remaining two, SVU is trading at a 38.7% discount. SVU earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:

1. Rolling 4-yr Div. > 15%
2. Dividend Growth Rate
3. Years of Div. Growth
4. 1-Yr. > 5-Yr Growth
5. Payout 15% of avg.

SVU earned one Star in this section for 3.) above. SVU has paid a cash dividend to shareholders every year since 1936 and has increased its dividend payments for 35 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to >MMA

SVU earned both of the available Stars in this section. The NPV MMA Diff. of the $6,799 is in excess of the $2,500 minimum I look for in a stock that has increased dividends as long as SVU has. SVU's current yield of 6.11% exceeds the 4.61% estimated 20-year average MMA rate.

Other: SVU is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. SVU is the largest U.S. food distributor to supermarkets, and the second largest conventional food retailer. It is the company's strategy to leverage its retail food and supply chain services by benefiting from economies of scale and its low-cost supply chain network.

SVU has strong market share positions and is well positioned within its regional markets. However, the company operates in a highly competitive environment with constant threats of new entrants into its markets. Risks include acquisition integration issues, further deterioration in the economy and increased competition.

Conclusion: SVU earned one Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and earned two Stars in the Dividend Income vs. MMA section for a net total of four Stars. This quantitatively ranks SVU as a 4 Star-Buy.

Using my D4L-PreScreen.xls model, I determined the share price could increase to $13.97 before SVU's NPV MMA Differential dropped below the $3,000 that I like to see. At that price the stock would yield 4.93%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the $3,000 NPV MMA Differential I'm looking for, the calculated rate is -0.3%. This dividend growth rate is below the 2.9% used in this analysis.

SVU has a RQ Rating of C3, thus carriers a little more risk than I want to add to my portfolio at this time. However, I have added it to my watch list with a $13.97 Buy Below price.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I held no position in SVU (0.0% of my Income Portfolio) .

What are your thoughts on SVU?


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