Supervalu Isn't Getting The Credit It Deserves

While SUPERVALU INC SVU's wholesale unit seems to be underappreciated, the company’s retail operations could get a boost from easing deflationary pressures, RBC Capital Markets’ William Kirk said in a report. He added that real estate value provided “hypothetical engineering upside.”

Kirk upgraded the rating on the company from Sector Perform to Outperform, while maintaining the price target at $6.

Wholesale Unit Underappreciated

The wholesale unit, which represents the majority of Supervalu’s business, is “not getting credit for its customer win pipeline,” Kirk noted, estimating the wins to contribute $1.1 billion in FY 2018 over 2017. He further mentioned that the estimates reflected only $857 million, while consensus was at just $682 million.

The analyst mentioned that the company’s core wholesale business was delivering healthy growth and business wins due to:

1. Mark Gross’s relationships.
2. Competitors focusing on the recently completed merger between Ahold and Delhaize Group SA DEG.
3. Large customer loss was “fully lapped” in Q4.

Easing Deflation

U.S. Agricultural Commodity Exports have recently been strong and excess supply appears to be depleting. Kirk projected inflation by May/June.

“With easing deflation/eventual inflation, a very strong wholesale win pipeline, and under-appreciated real estate portfolio, we believe SVU is very attractive,” Kirk commented.

At last check, shares of Supervalu were up 12.28 percent at $3.75.

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