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With some of the highest-performing supermarket brands under the SUPERVALU umbrella, this stock should only do better as the recession unwinds.

Hold - Price 13.69 on July 20
by Jefferies & Co.

Supervalu, one of the largest supermarket operators in the U.S., has annual retail sales of about $34 billion. We've previewed SVU's 1Q10. Expectations are low, and they should be...Market shares have been declining for years....Clearly, remodeling stores and getting price-competitive have not been enough -- so we believe SVU will have to undercut competitors and get within 5% to 10% of the mass merchants. This suggests earnings could go as low as $1.90 to $2. Selling noncore assets could prove difficult....A sale of Shaw's looks dilutive by at least 10 cents. Save-A-Lot and some distribution assets appear to have the best potential economics -- but even here, it is unclear whether it will make financial sense. If a transaction is possible, we would encourage management to do it quickly....We believe that an even more dramatic shake-up/enhancement is in order. Nevertheless, at six times the Street's FY10 number, much of SVU's operating difficulties appear to be discounted...positive actions by management or nascent signs of a turnaround may send the shares higher, short term, regardless of...difficulty on [any] true road to recovery. While slowly eroding, our sum-of-the-parts analysis suggests an equity value of at least 15. We're adjusting our target to 18, from 20...or seven times our CY10 EPS estimate of $2.50, slightly below our $19 [discounted-cash-flow] value. Risk to our Hold rating: a significant slowdown in comps [sales at stores open at least a year]. Market cap: $2.9 billion.

approved a 1.45 percent increase in the annual indicated dividend to $0.70 per share from last year's level of $0.69 per share.

a 1.45 percent increase in the annual indicated dividend to $0.70 per share versus last year's $0.69 per share. They also approved a buyback of up to $70 million of the company’s common stock.

MacAllaster: My second stock is Supervalu . It closed Friday [Jan. 2] at 14.88. The 12-month range has been 35.91 to 8.59. The company runs both wholesale and retail grocery operations. They've got the third-largest grocery chain in the U.S., after Wal-Mart Stores [WMT] and Kroger [KR]. Supervalu pays a dividend of 69 cents and yields 4%-plus. Book value per share is $29, just about double the stock price. [The company wrote down goodwill and intangible assets when it reported earnings Jan. 7. Book value is now around $16 a share.] Sales are flat to down in retail and positive in wholesale. Earnings were $2.76 a share in fiscal 2008, ended February, and should be about $2.75 for fiscal '09. The stock sells for five times earnings. Debt is high due to the purchase of the Albertsons grocery chain in 2006, but the company has been paying down between $400 million and $500 million a year. [It announced Jan. 7 that it would pay down $600 million in fiscal 2010.] Sales are about $45 billion.

From a recent Mad Money show: "No, no. If we're recommending a supermarket, we're going with Kroger (KR) who's got better margins and is a better company."

Pays dividend, low volatility

Grocery store operator Supervalu Inc. said recently its board authorized the repurchase of up to $70 million in stock from time to time.

The company plans to fund purchase primarily with the cash generated from the settlement of stock options.

The authorization program replaces the existing $235 million share repurchase program authorized in April 2007. About 5 million shares were purchased through Feb. 23 under that plan, according to a company spokeswoman.

The stock trades for 6x cash flow.

1.47%

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