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Valuations: Comparing SuperValu’s with Peers’

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Jul. 26 2016, Updated 9:04 a.m. ET

Company guidance and Wall Street’s view on SuperValu

SuperValu’s (SVU) management is expecting flat revenue and EBITDA (earnings before interest, tax, depreciation, and amortization) growth for the company in fiscal 2017. Wall Street has also a predicted flat top-line growth for SVU and is expecting the company’s total sales to be about $17.5 billion in fiscal 2017.

The company expects the first quarter of 2017 to be down from last year. However, the second, third, and fourth quarters are likely to be better than they were in fiscal 2016. Wall Street expects 1Q17 revenue to decline by 2% to approximately $3 billion. 1Q17 earnings per share are likely to fall by 4.3% to $0.22 per share in 1Q17.

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Valuations

SVU is currently trading at one-year earnings multiple of 7.3x and is clearly the cheapest in the supermarket peer group. In comparison, Kroger (KR), Sprouts Farmers Market (SFM), and Whole Foods Market (WFM) are trading at 16.0x, 22.2x, and 21.6x, respectively.

SuperValu’s earnings are expected to decline by 6.7% over the next 12 months. In comparison, Kroger and Sprouts Farmers Market are expected to see their earnings improve by 8.2% and 13.2%, respectively, over the next 12 months. Whole Foods Market’s earnings are likely to be under pressure and register a decline of 5.5% during the same period.

Wall Street’s view on SuperValu

The analyst community is positive on SuperValu and sees a potential for a stock price increase from the July 21 price of $5.32. The target price for SVU is $7, which indicates an upside of around 35%. Of the 14 analysts that have rated SVU, four have recommended a “buy “and ten have recommended a “hold” on the stock. None of the analysts have given a “sell” recommendation.

Investors looking to add exposure to SuperValu through ETFs can invest in the iShares Morningstar Small-Cap Value ETF (JKL). JKL invests ~0.28% of its portfolio in SVU.

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