These Three Grocery Stores have very Contrasting Personalities

Warren Buffet famously said buy what you know. Naturally, grocery store chains seem like a perfect fit. When I took a closer look at the companies in this industry, though, my theory was put to the test.

SuperValu
I am a huge fan of EPS trends. They are one of the first things I look at when I first begin researching a stock. EPS trends help me figure out if there are any particular years during a company's history that stand out and require further investigation.

Above is a chart of SuperValu (NYSE: SVU  ) , Safeway (NYSE: SWY  ) , and Kroger (NYSE: KR  ) . SuperValu's EPS performance along with its stock price performance warranted me to go back a bit further than I normally do. That's how I found out that in 2009 the drop in EPS was caused by an impairment charge which mostly consisted of goodwill from some retail food reporting units. In addition, the trend in dividends has not been optimal; in fact, SuperValu stopped paying a dividend after it declined dramatically.

The conclusion is that Supervalu is not the kind of stock that a value investor should own.

Safeway
Safeway may look appealing due to the spike in the EPS for the latest year, but further investigation reveals that most of that profit came from discontinued operations.

Below is a breakdown of Safeway's profit between continuing and discontinued operations. According to the most recent annual report for Safeway, on Nov. 3, 2013, Safeway sold its Canadian operations, thus contributing to the huge increase in EPS for the period. You can clearly see that for the past 5 years a majority of the profits came from Safeway's discontinued operations. 

Kroger
Kroger on the other hand is worth a look. It is the only company on the list that has steady EPS growth coupled with steady dividend growth. Kroger's annual reports indicate nothing out of the ordinary. Sales have been growing steadily over the years.

It is quite clear based on the above that Supervalu's revenue growth has been in decline. Safeway's revenue growth is unclear at best, but Kroger has been able to generate revenue growth. Some years have been higher than others, but it is important to remember that growth no matter how small is still important.

Verdict
Safeway and Supervalu could learn a thing or two from Kroger. Kroger's sales, dividend, and EPS have been increasing over the years, and its stock price never suffered the sharp drastic drop of the other companies signaling that Kroger is providing good value to its shareholders.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3032661, ~/Articles/ArticleHandler.aspx, 10/25/2014 9:07:07 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement