So what exactly has changed since my last purchase of SUPERVALU
As before, the special situation at SUPERVALU remains the deleveraging. The company has nearly $5.2 billion in debt, but it's committed to paying off as much as $450 million more this year, and free cash flow for the next few years should comfortably cover maturities. You can see the debt market's comfort with SUPERVALU 's situation in bonds that trade near or above par. Even the 2016 maturity of $1 billion, which the company will not be able to pay off before it's due, trades above par. So why is the stock market all roiled?
And you want cheap? In its fourth-quarter conference call, the company predicted earnings per share of $1.27 to $1.42 for the upcoming year. The 18 analysts covering the stock came in at the low end, $1.29. That's less than four times earnings. Meanwhile, peers Kroger
SUPERVALU even looks to grow earnings, from an adjusted EPS of $1.25 in the past year to at least a few cents more this year. It's small, but I'll take it. And CEO Craig Herkert predicts an improvement in same-store sales to negative 1%-2%. And we still have another growth engine in the Save-A-Lot franchise.
Also nice is that Herkert expects margins to hold firm, as SUPERVALU funds lower prices with its other cost-saving initiatives. SUPERVALU's operating margin is about in line with Safeway's at 2.6% and somewhat higher than Kroger's at 2.5%.
Some speculation of a private equity buyout has taken shares off the recent bottom of about $4 per share. That may or may not happen. But I'm refusing to anchor to price here. At $5, shares are still a great deal. That's why my Special Situations portfolio will be buying $1,000 on the next business day.