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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. (NYSE: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.