Today's Research recommendation is on Supervalu Inc. (SVU). According to Yahoo!Finance SVU, "operates as a grocery retailer in the United States. The company operates combination stores, food stores, and limited assortment food stores. Its stores offer various grocery products, general merchandise, health and beauty care products, pharmacy products, fuel, and other items and services." According to Mergent's, SVU has increased it's dividend 35 consecutive years in a row.The above table illustrates the perspective that I have on Supervalu Inc. (SVU) as compared to the other Dividend Achievers that are ranked by price closest to their 52-week low. As you can see (when you click on the image) SVU is the only company that is within it's 1 year low and selling below book value. Click on the following link to get a reasonable breakdown by message board poster GOOFERB who does a great job with an industry peer review on SVU.
The most alarming matter for SVU is the issue of the amount of long-term debt held by this company. Just to reiterate, from the Yahoo!Finance message board post by GOOFERB, the debt situation is as follows:
"The debt load: SVU’s long term debt is bloated due to its Albertsons acquisition. The company has pared its debt, but with long term debt topping out at about $8.8 billion, it’s significantly higher than KR’s $7.7 billion and SWY’s $6 billion. All three company's have about $250 million in cash. It's apparent that SVU's debt service is eating into the bottom line and it’s the probable reasoning behind Wall Street’s relatively low valuation of its share price."
With the debt situation in mind, I have to say that when reviewing Valueline Investment Survey's report on SVU over the last 20 years I find that the company has consistently maintained a mean price-to-cashflow of 5 times. According to Valueline, SVU registered a cashflow per share of $7.59 in 2007 which implies a mean price of $37.95.
According to Valueline, the book value for SVU in 2007 was indicated to be $28.08 in 2007 and is expected to reach $30 and $32 in 2008 and 2009 respectively. Currently, Yahoo!Finance has SVU with a trailing twelve month (ttm) book value of $28.83. This implies a discount of around 9% of book value.
From a technical perspective, the stock has moved upward from an important support level of $24 back to 1999. If the $24 level holds up this stock will likely trade in a range and/or move higher. SVU must trade above $26.25 and exceed $27.55 in order to give the investor the green light in terms of going back to the $35 level.
SVU's ability to increase the dividend over the last 35 years along with it's well protected dividend, due to the low payout ratio, suggests that this stock is a great opportunity with limited downside risk. Touc.
