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Goldman Sachs Lowers Investment Rating on Supervalu Citing Increasing Competition

Goldman Sachs Lowers Investment Rating on Supervalu Citing Increasing Competition


Goldman Sachs analyst, Stephen Grambling, recently lowered his investment rating of Supervalu, citing a cut in food stamp benefits and increasing competition are likely to hurt the company. Shares fell Monday after the downgrade, according to CNBC. As of midday EST, market action communicated that shares were down 62 cents, or 9.1 percent, to $6.26 and most recently have been hovering near $6.34.

Grambling downgraded Supervalu's stock rating to "Sell" from "Neutral." He also reduced his 12-month price target to $6 from $8, the report states.

Supervalu has been shedding some of its businesses to offset declining sales and combat competition; selling off its Albertsons, Acme, Jewel-Osco, Shaw's and Star Market stores for $3.3 billion to an affiliate of private equity firm Cerberus Capital Management LP.

Grambling noted in a correspondence with clients that food stamps make up about 40 percent of Save-A-Lot's sales, a Supervalu banner. A drop in food stamp benefits could push customers to lower priced items such as pasta instead of more expensive perishable items, he suggested. Customers might migrate to dollar stores and Walmart from Sav-A-Lot as they seek out the lower prices.

He also adjusted his earnings estimates for the current fiscal year and the next two years, cutting fiscal year endings estimates for February, to 52 cents per share from 55 cents per share. He also cut his forecast for the fiscal year ending February 2015 to 61 cents per share from 67 cents per share; and for the following year to 57 cents per share from 63 cents per share.

How will this rating affect Supervalu in the long haul? Stay tuned to DeliMarket TV for further developments with the grocery retailer.