Winn Dixie's Buyout Could Be The Catalyst For A Supervalu Breakout

Dec.20.11 | About: SUPERVALU Inc. (SVU)

Winn Dixie’s (NASDAQ:WINN) buyout the other day at a huge premium should encourage investors to look at other beaten down stocks in the supermarket space that could be next in line for a buyout at substantially higher prices. One stock I like in this area is Supervalu.

7 reasons why Supervalu (NYSE:SVU) is undervalued at $7.50 a share:

1. Several insiders have been buying shares in the last few months.

2. Supervalu is selling at the bottom of its five year valuation range based on P/E and P/S.

3. The company has significantly beat consensus earnings estimates each of the last three quarters.

4. SVU has been building a technical base over the last year at just under these levels (See Chart)

Click to enlarge
(Click to enlarge)

5. The stock has a forward PE of under 6 which is a 35% discount to its five year average.

6. SVU provides a generous yield of 4.7% which should continue to put a floor under the stock.

7. The Winn Dixie buyout should cause investors and activists to re-examine Supervalu’s stock. The market is assigning a value of a little over $3mm per store (which includes debt) to SVU, which seems much below replacement cost.

Disclosure: I am long SVU.