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Supervalu Inc Valuation – September 2018 $SVU

Company Profile (excerpt from Reuters): Supervalu Inc., incorporated on December 28, 1925, 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 private-label products include Culinary Circle, Stockman & Dakota, Wild Harvest, Essential Everyday, EQUALINE, Arctic Shores Seafood Company, Baby Basics, Farm Stand, Stone Ridge Creamery, Super Chill and Shopper’s Value.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of SVU – September 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

1. Adequate Size of the Enterprise Market Cap > $2Bil $1,245,620,270 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.24 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 -123.62% Fail
6. Moderate PEmg Ratio PEmg < 20 7.63 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.51 Pass
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 1.24 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.87 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 $4.23
MG Growth Estimate 15.00%
MG Value $162.98
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $61.38
MG Value based on 0% Growth $35.98
Market Implied Growth Rate -0.44%
Current Price $32.29
% of Intrinsic Value 19.81%

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, and the poor dividend history. 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 Undervalued after growing its EPSmg (normalized earnings) from $-14.57 in 2015 to an estimated $4.23 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.44% annual earnings loss 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 above 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 7.63, which was below the industry average of 286.06, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-45.08.

SUPERVALU INC. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$45.08
Graham Number $0.00
PEmg 7.63
Current Ratio 1.24
PB Ratio 2.51
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 6/1/2018
Total Current Assets $1,901,000,000
Total Current Liabilities $1,531,000,000
Long-Term Debt $1,432,000,000
Total Assets $4,102,000,000
Intangible Assets $896,000,000
Total Liabilities $3,614,000,000
Shares Outstanding (Diluted Average) 38,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate -$1.33
Feb2018 $1.18
Feb2017 $17.00
Feb2016 $4.66
Feb2015 $5.11
Feb2014 $4.90
Feb2013 -$48.37
Feb2012 -$34.37
Feb2011 -$49.91
Feb2010 $12.95
Feb2009 -$94.57
Feb2008 $19.32
Feb2007 $16.24
Feb2006 $10.22
Feb2005 $18.97
Feb2004 $14.07
Feb2003 $13.37
Feb2002 $10.29
Feb2001 $3.85
Feb2000 $13.09
Feb1999 $10.99

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.23
Feb2018 $6.87
Feb2017 $5.36
Feb2016 -$4.84
Feb2015 -$14.57
Feb2014 -$23.93
Feb2013 -$39.85
Feb2012 -$33.50
Feb2011 -$28.44
Feb2010 -$14.19
Feb2009 -$20.50
Feb2008 $16.28
Feb2007 $14.70
Feb2006 $13.75
Feb2005 $14.38
Feb2004 $11.70
Feb2003 $10.45

Recommended Reading:

Other ModernGraham posts about the company

Supervalu Inc Valuation – Initial Coverage $SVU

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Whole Foods Market Inc. Valuation – October 2015 Update $WFM
Kroger Company Analysis – 2015 Update $KR
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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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