Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Supervalu Inc (SVU) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Supervalu Inc. is a wholesale distributor to independent retail customers across the United States. The Company’s segments include Wholesale and Retail. The Company offers a range of advertised brand name and private-label products, including grocery (both perishable and nonperishable), general merchandise and home, health and beauty care, and pharmacy, which are sold through Company-operated and licensed Retail stores to shoppers and through its Wholesale segment to independent retail customers. The Company’s Wholesale segment provides wholesale distribution of products to independent retail customers. Wholesale is organized and operated through two geographic regions: East and West. As of February 27, 2016, the Company conducted its Retail operations through a total of 200 stores primarily organized under five regionally-based retail banners of Cub Foods, Shoppers Food & Pharmacy, Shop ‘n Save, Farm Fresh and Hornbacher’s, as well as two Rainbow and two County Market stores.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of SVU – March 2017
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $895,261,545 | Fail | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 0.71 | Fail | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Fail | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Fail | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | -118.43% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 91.84 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | -3.58 | Fail | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 0.71 | Fail | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | -1.69 | Fail | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Fail | ||
| 4. Dividend Record | Currently Pays Dividend | Fail | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $0.04 |
| MG Growth Estimate | 15.00% |
| MG Value | $1.46 |
| Opinion | Overvalued |
| MG Grade | F |
| MG Value based on 3% Growth | $0.55 |
| MG Value based on 0% Growth | $0.32 |
| Market Implied Growth Rate | 41.67% |
| Current Price | $3.49 |
| % of Intrinsic Value | 238.55% |
SUPERVALU INC. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $-5.69 in 2013 to an estimated $0.04 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 41.67% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into SUPERVALU INC. revealed the company was trading above its Graham Number of $0. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 91.84, which was above the industry average of 19.87. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-10.88.
SUPERVALU INC. scores quite poorly in the ModernGraham grading system, with an overall grade of F.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$10.88 |
| Graham Number | $0.00 |
| PEmg | 91.84 |
| Current Ratio | 0.71 |
| PB Ratio | -3.58 |
| Current Dividend | $0.00 |
| Dividend Yield | 0.00% |
| Number of Consecutive Years of Dividend Growth | 0 |
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Most Recent Balance Sheet Figures
| Balance Sheet Information | 11/1/2016 |
| Total Current Assets | $1,850,000,000 |
| Total Current Liabilities | $2,597,000,000 |
| Long-Term Debt | $1,261,000,000 |
| Total Assets | $4,474,000,000 |
| Intangible Assets | $751,000,000 |
| Total Liabilities | $4,732,000,000 |
| Shares Outstanding (Diluted Average) | 265,000,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $0.25 |
| Feb2016 | $0.66 |
| Feb2015 | $0.73 |
| Feb2014 | $0.70 |
| Feb2013 | -$6.91 |
| Feb2012 | -$4.91 |
| Feb2011 | -$7.12 |
| Feb2010 | $1.85 |
| Feb2009 | -$13.51 |
| Feb2008 | $2.76 |
| Feb2007 | $2.32 |
| Feb2006 | $1.46 |
| Feb2005 | $2.71 |
| Feb2004 | $2.01 |
| Feb2003 | $1.91 |
| Feb2002 | $1.47 |
| Feb2001 | $0.55 |
| Feb2000 | $1.87 |
| Feb1999 | $1.57 |
| Feb1998 | $1.82 |
| Feb1997 | $1.30 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $0.04 |
| Feb2016 | -$0.69 |
| Feb2015 | -$2.08 |
| Feb2014 | -$3.42 |
| Feb2013 | -$5.69 |
| Feb2012 | -$4.78 |
| Feb2011 | -$4.06 |
| Feb2010 | -$2.03 |
| Feb2009 | -$2.93 |
| Feb2008 | $2.33 |
| Feb2007 | $2.10 |
| Feb2006 | $1.96 |
| Feb2005 | $2.05 |
| Feb2004 | $1.67 |
| Feb2003 | $1.49 |
| Feb2002 | $1.34 |
| Feb2001 | $1.33 |
Recommended Reading:
Other ModernGraham posts about the company
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Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
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