Is Supervalu’s Stock a Sell Now?

With shares of Supervalu (NYSE:SVU) seeing an upswing on Monday and now trading at around $3.17, is it a BUY, a WAIT and SEE, or a STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Shares of Supervalu, which have struggled lately, rose 44.75 percent on Monday after JPMorgan analyst Carla Casella upgraded the stock to Neutral from Underweight on the possibility that the grocery store chain may be sold. Casella said the likelihood of a deal was about 50 percent.

However, Supervalu has been forced to replace its chief executive and close several stores as it struggles in an economic climate where shoppers are spending less. Last week, the stock suffered after the company reported a second-quarter loss and before Monday, shares had been down 73 percent since the start of the year.

T = Technicals on the Stock Chart are Weak

As of October 22, 2012, the stock price is 46.15 percent above its 20 Day Simple Moving Average; 39.10 percent above the 50 Day SMA; and 30.30 percent below the 200 Day SMA. Since the beginning of 2012, the stock price has been in a downward trend and is down 60.96 percent year-to-date and down 60.33 percent year-over-year.

E = Earnings Are Decreasing Quarter over Quarter

Supervalu’s earnings have fallen over the last few quarters, and it registered a net loss of $111 million in the September quarter after a net profit of $41 million in the previous quarter and a profit of $60 million year-over-year. Since earnings are not increasing quarter-over-quarter, the stock is too high for our risk profile.

E = Excellent Relative Performance to Peers

Many investors favor Return on Equity as a key metric to how well the company is operating. Supervalu’s operational performance is weaker when compared with peer companies. SVU has an ROE of negative 169.14 percent while rival Kroger (NYSE:KR) comes in much healthier at a positive 13.39 percent and Safeway (NYSE:SWY) has an ROE of 14.25 percent.

Operating margins are also critical for stock evaluation. Supervalu is struggling with a margin of negative 2.41 percent compared to a positive 1.43 percent for Kroger and 2.37 percent for Safeway.

Conclusion

Supervalu has struggled in recent years as it battles to find the right balance between cutting prices for consumers to increase profitability. However, the chain has done worse than its rivals in dealing with the economic slowdown and has posted an annual loss for three of its past four fiscal years. It is also under big obligations, including $6 billion in long-term debt as of September 8.

Supervalu looks like it will UNDERPERFORM based on the key metrics above.

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