Is SUPERVALU (SVU) a Great Stock for Value Investors?

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put SUPERVALU Inc. SVU stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, SUPERVALU has a trailing twelve months PE ratio of 7.10, as you can see in the chart below:

This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 19.84. If we focus on the stock’s long-term PE trend, the current level puts SUPERVALU’s current PE ratio below its midpoint of 10.53, over the past five years. Moreover, the current level is fairly below the highs for this stock, suggesting it might be a good entry point.

Further, the stock’s PE also compares favorably with the Zacks classified Food-Miscellaneous Preparation/Diversified industry’s trailing twelve months PE ratio, which stands at 22.82. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that SUPERVALU has a forward PE ratio (price relative to this year’s earnings) of 8.01, so it is fair to expect an increase in the company’s share price in the near future.

P/CF Ratio

An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.

The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.

In this case, SUPERVALU’s P/CF ratio of 2.92 is lower than the Zacks classified Food-Miscellaneous Preparation/Diversified industry average of 24.10, which indicates that the stock is considerably undervalued in this respect.

Broad Value Outlook

In aggregate, SUPERVALU currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes SUPERVALU a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the P/S ratio for SUPERVALU (another great indicator of value) comes in at 0.08, which is far better than the industry average of 1.61. Clearly, SVU is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though SUPERVALU might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘A’ and a Momentum score of ‘F’. This gives SVU a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has not seen estimates moving in either direction over the last 60 days, while the full year estimate has seen no upward revision and one downward revision in the same time period.

This has had just a small impact on the consensus estimate though as the current quarter consensus estimate has remained constant in the past two months, while the full year estimate has inched down by 1.7%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

SUPERVALU INC Price and Consensus

 

SUPERVALU INC Price and Consensus | SUPERVALU INC Quote

This somewhat mixed trend is why the stock bears a Zacks Rank #4 (Sell) and why we are expecting that the company might disappoint in the near term.

Bottom Line

SUPERVALU is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (bottom 42% out of more than 250 industries) and a Zacks Rank #4, it is hard to get too excited about this company overall.

So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.

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