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In my opinion, Supervalu's decision to suspend its dividend was inevitable. The company's business has been under heavy pressure, and simply put, the company is not in a position to pay a dividend. Rather, Supervalu should be using the money to upgrade its stores. Because I believed a dividend cut was inevitable, I have avoided Supervalu until now. While the decision to eliminate the dividend had a negative impact on the stock, I believe for the long-term, Supervalu made the right decision. SA Contributor Valuentum wrote a piece outlining why the dividend cut could help Supervalu survive.
While Supervalu did report a weak quarter, it is worth noting that the company is still solidly profitable. It earned $41 million or $0.19 cents per share. These numbers are much lower than the $76 million or $0.35 cents per share a year ago. However, it should be noted that the stock has fallen more than 70% over the past year. In short, the earnings fall has already been priced in.
Supervalu For Sale
Reports have surfaced indicating that Supervalu is for sale. I think a takeover is possible for a few reasons. First, a takeover would only require about $8 billion, as the company currently has $6.3 billion in debt and $530 million in equity. Also, there are likely a few different parties interested in Supervalu. Other grocery store companies such as Kroger Co. (KR) could be interested in owning Supervalu. Additionally, Supervalu would be an interesting private equity target. Finally, I would not be surprised to see different parts of the company sold to different parties. While not as bullish as a complete takeover, such a deal would give the stock a boost.
Over the past three days, Supervalu has traded 72 million, 40 million, and 34 million shares respectably. In total, Supervalu has 213 million shares outstanding. I believe the volume, the plunge lower in share price, and bad news are signs of possible capitulation.
While I am not sure Supervalu has a bright long-term future, I think it makes sense, at this price, to speculate by buying the stock for a trade.
Disclosure: I am long SVU.