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Strategies & Market Trends : Turnarund Investing

NOVS 0.0666

-16.0%

Aug 1 5:00 PM EST

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To: batman10023 who wrote (1803)	7/14/2012 8:38:49 AM
From: KyrosL	Read Replies (1) of 1876

Turning SVU around will be tough, but I think doable. Maybe a 50% chance. What they did is just right for longer term survival. They must bring their prices down, and now they may have the money to do it. Roughly $350 million per year is my estimate from the dividend cut, cap ex reduction (i.e. slow down of new stores), and cost reductions. The dividend elimination gives them flexibility with their debt and they will probably be able to get better terms for their bank credit. The CEO said he aims to be competitive in pricing with discounters in a couple of years. So, they are aiming high. And it takes time to change customer perceptions after years of mismanagement. Now as a trade, I obviously bought high in the $2.60s. When I bought, roughly half of the float had traded since the announcement, and I thought that is sufficient. But I see that institutional ownership of SVU is 110%, with half the float shorted. A lot of those institutions are probably holding it because of the dividend. So there must be an overwhelming urge to sell among them. Perhaps in a few days a better buying opportunity will arise.

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