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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Walter Bagehot who wrote (38146)	6/2/2010 8:27:06 PM
From: E_K_S	Read Replies (1) \| Respond to of 78464

Hi Walter - RE: SUPERVALU Inc. (SVU) I have followed SVU for a long time as a value buyer and stock holder from the Albertsons days. I have added shares over the years in this price area ($12-$13) and sold some shares around the $20 range. The reasons why I like the company (1) they own the real estate for every store they operate, (2) SVU came into the Albertson's deal with the best wholesale distribution operation bringing efficiencies into the back end operation, (3) although margins are very thin in this business, the company continues to generate good cash flow post their acquisition and (4) at the current price the PE is in "value" buy range as long as no land mines are hit. When SVU did the Albertson's acquisition, they cherry picked the good store locations leaving the other sites & the Osco Drug divisions to the other partner. As a result they should have the best of the best stores from Albertson's. The company recently announced some additional store closures and sales with the proceeds used to pay down debt. I am not too sure these sales (I think they closed last quarter) are reflected in the Yahoo financial summaries. The new CEO comes from WalMart so he brings that culture to SVU which should be good to help further utilize their logistic efficiencies and more importantly better brand the individual SVU stores to each region and (upscale) market opportunity. SVU was criticized for poor in store retailing. One of the first actions by the new CEO was cutting their dividend to help conserve cash (I sold a chunk of my shares around $17.00 on that announcement). When I last noticed SVU's stock price in this range, I passed on adding shares because of their continued large debt. The current environment is different and those that have large debt service are more vulnerable now especially when the next move in the interest rate cycle will be higher rates. So, I am on the fence on this one. I also own Tesco and you can see that SVU has underperformed ( finance.yahoo.com ) by as much as 50% during the five year period representing operations post the Albertson's acquisition. The value investor in me says this is the time to load up (maybe even pair down my Tesco shares to buy more SVU). However, I am cautious buying or adding to positions where the company has a large amount of debt. In fact, my new rule is only buy companies where LT debt can be paid off by 3x or 4x annual earnings. It take SVU 19 years of current annual earnings to pay off their LT debt! Like Paul discussed there are always exceptions to that rule (or any other hard fast value rule). This may be one. The ace-in-the-hole are their real estate assets. This is where all the value is tied up. SVU did name a new VP of Market & Real Estate Development today so perhaps the CEO is looking at another round of non-strategic store sales. The company is leveraged much more than I like but it is with an operation that generates a lot of cash. If the end play is for the CEO to sell more stores and whittle down their LT debt, then SVU could see an expanding PE something more in line of their peers (ie. 16.96 Industry; Walmart PE 13.57). It's not the best time to be selling stores (and the associated real estate) so if they can hang on for five more years and then peel off some of their real estate assets, the stock could potentially trade back to it's previous highs in the $40.00's. If the stock continues lower on lower volume, I may consider adding a few more shares and on any sustained rally sell some of my higher priced shares. The dividend yield (even after their cut) is ok at 2.6%. You ask some very good questions which have no absolute answers. I do know that I saw the same value in Sears & KMART before it was consolidated for their real estate assets. Eddie Lampert loved to buy old companies that threw off a lot of cash. SVU has a lot of the same attributes that both Kmart & Sears have. However KMART went bankrupt. EKS

To: Walter Bagehot who wrote (38146)	6/7/2010 4:12:05 PM
From: E_K_S	Read Replies (2) \| Respond to of 78464

RE: SuperValu Inc. Common Stock (NYSE: SVU) Increased my SVU shares by 25% with a purchase today. Stock is testing new lows on lower volume. It could be signs that the relentless shareholder has (or is) throwing in the towel on this stock. There is chatter on the message boards that SVU may be getting ready for some layoffs at their Bristol Farm stores one of their high end chains. This has always been a very profitable chain and considered one of the crown jewels of the SVU empire (at least when times were good). It's possible they could be packaging these store for a possible sale, probably a LBO by a private equity firm. I am not too sure if this would be a positive or a negative. I could see SVU doing some type of deal where they keep the distribution & warehouse operation support services (perhaps binding the buyer to a 10 year distribution contract) but selling the branded retail franchise to an independent operator (maybe to the employees w/ an LBO backer). This would include selling the real estate for these stores. If the Bristol Farm stores are packaged for sale in this manner, it may make a good deal for all the parties and free up a lot of cash to reduce corporate LT debt. I will continue to build my position. FWIW after visiting my local WalMart, they are no threat to SVU at least for the stores located here on the West Coast (ie. Lucky & Albertsons). EKS