Junto Posted January 16, 2011 Share Posted January 16, 2011 Oversold at the current levels. New Long position - Equity and Jan 2013 7.50 calls Seeking Alpha - Main Page - http://bit.ly/fVNtIw - Good Note --> Supervalu Should Reward Patient Investors With Substantial Upside - http://bit.ly/eDnF0p - On Flawed Comparisons: SuperValu and Great Atlantic-Pacific Tea Co. - http://bit.ly/hjiJEL Barel Karsan - SuperValu: Leveraged Buy-Out For Retail Investors - http://bit.ly/gFL1t4 SuperValu May Soon Have Its Day - http://bit.ly/flFvJ5 It appears to me that the market has set this stock up for a deep value opportunity for investors. Link to comment Share on other sites More sharing options...
Myth465 Posted January 16, 2011 Share Posted January 16, 2011 Very interesting idea. Are you Frank? Will have to look into this in a few days / weeks. Thanks. Link to comment Share on other sites More sharing options...
prunes Posted January 16, 2011 Share Posted January 16, 2011 Very interesting idea. Are you Frank? Will have to look into this in a few days / weeks. Thanks. Myth - what is your stance when it comes to buying companies with such significant debt loads? I would think that investors of the Buffet/Klarmin style would probably shy away from this. Can you think of any notable value investors that might go after something like this and books that might discuss more risky situations such as this? Link to comment Share on other sites More sharing options...
Junto Posted January 17, 2011 Author Share Posted January 17, 2011 Hi Myth, no I am not Frank, just free riding on republishing his thoughts which are not far off from my own. Prunes - look at the free cash flow and forward looking earnings and cash flow. Look at the revolver and credit markets. Strong branded groceries in it's stable. Look at the action in it's bonds lately. The debt load is high but it is manageable given the operating metrics and improved credit markets. Smells of opportunity... Then again, I like stocks with some hair and challenging market sentiment. Risk reward seems to be very favorable right now due to the GAP bankruptcy filing and goodwill/non cash impairment charges. Link to comment Share on other sites More sharing options...
finetrader Posted January 17, 2011 Share Posted January 17, 2011 just found this on yahoo's top stories. http://finance.yahoo.com/news/Why-supermarket-stocks-are-apf-904020854.html?x=0&sec=topStories&pos=7&asset=&ccode= Link to comment Share on other sites More sharing options...
Myth465 Posted January 17, 2011 Share Posted January 17, 2011 Very interesting idea. Are you Frank? Will have to look into this in a few days / weeks. Thanks. Myth - what is your stance when it comes to buying companies with such significant debt loads? I would think that investors of the Buffet/Klarmin style would probably shy away from this. Can you think of any notable value investors that might go after something like this and books that might discuss more risky situations such as this? Debt forces me to demand a higher quality business / business plan. Klarman went into the MLPs which had high debt, and I followed him. The business models were sound and the revenues were guarantee due to hedging. I dont mind debt as long as cash flow can service it and cash flows are basically guaranteed or highly likely. I own FTR which has a bit of debt, but I dont own anything as levered as this. My main concern here would be declining cash flow. I think they can service the debt but it only really works well if they continue to pay down debt at a fast clip. I dont think the grocery business is as good though but find it to be an interesting case study. I probably wont take a position but do think the leaps will be highly profitable. At some point this sell off sentiment will pass and I think the stock will move back up. Based on that article its selling off from inflation fears and I think it will go from being severally depressed to just depressed. Oh ya ATPG and SD are also highly levered. The business models arent as sound but are both getting better due to hedging. I find these to be extremely good risk rewards and dont see bankruptcy unless we have a BP style incident with ATPG and a sustained drop in oil prices (3 years). Link to comment Share on other sites More sharing options...
enoch01 Posted January 17, 2011 Share Posted January 17, 2011 Revenue is dropping. Until that stabilizes I'm finding it hard to pull the trigger. Shrinking revenue means the cash flow is not dependable, and the debt burden is actually growing on a relative basis. Any thoughts on liquidation value? Link to comment Share on other sites More sharing options...
tradevestor Posted January 17, 2011 Share Posted January 17, 2011 High debt is good in an inflationary environment. You will be paying back the debt with cheaper dollars. Even if the margins drop, as long as they can make the same nominal dollar amount, they will do fine. I am not smart enough to know how inflation will affect their nominal cash flow, though. Link to comment Share on other sites More sharing options...
Guest bengrahamofthenorth Posted January 18, 2011 Share Posted January 18, 2011 Supervalue only appears cheap on a PE basis due to the extreme amount of debt in its capital structure. Check out the EV/EBIT ratio. Nothing special at these prices given the risk in my opinion. Link to comment Share on other sites More sharing options...
prunes Posted January 18, 2011 Share Posted January 18, 2011 The grocery business has always been one of low margins. That's why grocers tend to operate with leverage. The business most of the time is relatively stable so that allows them to operate with debt relatively comfortably. I'm not sure EV/EBIT is this best metric here. Link to comment Share on other sites More sharing options...
Guest bengrahamofthenorth Posted January 18, 2011 Share Posted January 18, 2011 The debt won't be too comfortable if SSS keep falling. I am just trying to be aware of the downside. Link to comment Share on other sites More sharing options...
Viking Posted January 19, 2011 Share Posted January 19, 2011 I like the fact management is pretty up front about the issues. They also look to have some time (a couple of years) to right the ship given the amount of cash they generate. They also likely have some great assets. They look to have a broken business model and the immediate outlook is also pretty grim (cost inflation and competitive issues). And they have a bunch of debt which complicates things greatly. Bottom line is they have too many moving parts for me to understand. If I bought the shares I would be making a 'greater fool' purchase (hoping that the price goes up at some point in the next little while and someone takes the shares off my hands). Not the kind of purchase I am looking to make. Link to comment Share on other sites More sharing options...
prunes Posted January 19, 2011 Share Posted January 19, 2011 SVU fell to a new 20-year low today. I decided to be that greater fool and catch the falling knife with a small speculative position. Buy low and sell high, right? Link to comment Share on other sites More sharing options...
Myth465 Posted January 19, 2011 Share Posted January 19, 2011 I would buy with leaps if I bought at all, you could take a 1% - 2% position which would deliver great returns if it came back or would only lose 1% or less in 2013 if it kept falling.. I dont like the inflation squeeze and dont like the declining revenues. Its in the too hard pile for me. Link to comment Share on other sites More sharing options...
prunes Posted January 19, 2011 Share Posted January 19, 2011 Agreed - lot of hair on it. The way I got comfortable with it is that the company has breathing room on its debt with its bank revolver, and inflation increases should only be impactful in the near-term. Ultimately, the company should be able to pass inflation costs through to the consumer. Link to comment Share on other sites More sharing options...
bathtime Posted January 20, 2011 Share Posted January 20, 2011 There's an in-depth discussion of SVU here: http://boards.fool.com/supervalu-svu-29034283.aspx?sort=whole Link to comment Share on other sites More sharing options...
Junto Posted January 27, 2011 Author Share Posted January 27, 2011 Stocking up on Supervalu - Fortune Article today: http://bit.ly/ebiOZG FORTUNE -- It's hard being a grocer these days. With consumers pinching pennies and Wal-Mart poaching customers, all the major chains have been squeezed -- none more than Supervalu. Sales at the country's third-largest grocery company -- which owns Shaws, Albertsons, Jewel, among other chains -- fell by 6% to $8.7 billion in its last quarter. Profits dropped 54%. And its shares have tumbled 52% over the past year. The problem is that as grocers fight each other with price cuts, Supervalu (SVU, Fortune 500) has tried a Goldilocks approach: trim prices enough to attract shoppers, but not too much that profits get squeezed. It hasn't worked. Worse yet, the tough times come as Supervalu continues paying down huge debts from its $7 billion acquisition of Albertsons during the boom years...cont'd Link to comment Share on other sites More sharing options...
zippy1 Posted February 3, 2011 Share Posted February 3, 2011 This is what was said by Archie MacAllaster during the Barron's annual roundtable on the Jan. 24th issue. "I would like to mention Supervalu [sVU], the grocery retailer, but it isn't a formal pick, as I was selling it in December to take a tax loss. I recommended it last year and it didn't treat me or your readers well. [The stock was down 24% in 2010.] The company has about $38 billion of sales and probably will make $1.20 to $1.30 a share in the fiscal year that ends next month. That could go up to $1.35 a share in fiscal 2012, and then $1.40. It sells for 8.66." The link below http://online.barrons.com/article/SB50001424052970204853904576090250370348320.html?mod=BOL_archive_twm_fs#articleTabs_panel_article%3D1 Link to comment Share on other sites More sharing options...
zippy1 Posted February 3, 2011 Share Posted February 3, 2011 Digging a bit deeper, I realized that MacAllaster recommended SVU in 2010 and 2009 also. Looks like he is (was?) bailing out finally? The 2010 recommendation and link "MacAllaster: My last pick is Supervalu [sVU]. I recommended it last year, as well. It lost 13%. Kroger [KR] had a very poor quarter and all the supermarket stocks sold off. Supervalu now sells now for about 12.80. It looks like the company will earn about two bucks for the past year. It is a cheap stock, selling below book value of $14 a share. Supervalu is a big company, with $45 billion of sales. It has a lot of debt, but it is paying down debt. It sells for about 6.25 times earnings. The company earned as much as $3 a share at the peak, and it will get back there. That's it." The link to 2010 article, http://online.barrons.com/article/SB126481834407037651.html His thought on SVU in 2009, "It's going higher. My second stock is Supervalu. It closed Friday [Jan. 2] at 14.88. The 12-month range has been 35.91 to 8.59. The company runs both wholesale and retail grocery operations. They've got the third-largest grocery chain in the U.S., after Wal-Mart Stores [WMT] and Kroger [KR]. Supervalu pays a dividend of 69 cents and yields 4%-plus. Book value per share is $29, just about double the stock price. [The company wrote down goodwill and intangible assets when it reported earnings Jan. 7. Book value is now around $16 a share.] Sales are flat to down in retail and positive in wholesale. Earnings were $2.76 a share in fiscal 2008, ended February, and should be about $2.75 for fiscal '09. The stock sells for five times earnings. Debt is high due to the purchase of the Albertsons grocery chain in 2006, but the company has been paying down between $400 million and $500 million a year. [it announced Jan. 7 that it would pay down $600 million in fiscal 2010.] Sales are about $45 billion." The link to the 2009 article, http://online.barrons.com/article/SB123215888715192693.html?mod=9_0031_b_this_weeks_magazine_main Link to comment Share on other sites More sharing options...
Junto Posted February 4, 2011 Author Share Posted February 4, 2011 SVU up over $8 today - 10.45% gain Link to comment Share on other sites More sharing options...
zippy1 Posted February 4, 2011 Share Posted February 4, 2011 SVU up over $8 today - 10.45% gain I am also surprised to see this big move. Is there any other reason beyond that it may be cheap? Link to comment Share on other sites More sharing options...
Junto Posted April 1, 2011 Author Share Posted April 1, 2011 SVU up over $8 today - 10.45% gain Pushing $9.00 Link to comment Share on other sites More sharing options...
Junto Posted April 14, 2011 Author Share Posted April 14, 2011 SVU posted good earnings compared to analyst expectations: http://www.google.com/finance?q=NYSE:svu Up in premarket over $10.25 Link to comment Share on other sites More sharing options...
prunes Posted April 14, 2011 Share Posted April 14, 2011 Nice job on those $7.50 calls. I'm jealous, I only bought the shares. I'm out at $10. What is your target? Link to comment Share on other sites More sharing options...
Myth465 Posted April 14, 2011 Share Posted April 14, 2011 congrats I wish I picked up leaps. Perhaps I am being too picky, everything in deep value looks hairy these days. Link to comment Share on other sites More sharing options...
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