SVU Stock: Buy One, Get One Free As Supervalu Tanks

Only three OTC listed penny stocks could beat the $1 million dollar volume level on Thursday since everyone was at Supervalu Inc. (NYSE: SVU) scrambling through the aisles of their half off sale on their shares. The three OTC listed penny stocks that broke the million dollar mark were Centaurus Diamond Technologies Inc. (CTDT) with $1,712,190, Advanced Cell Technology Inc. (ACTC) with $1,541,054, and Great Wall Builders Ltd. (GWBU) with $1,032,020. All 4 of these penny stocks should be on the trading screens tomorrow as the Friday sell off begins at exactly 2pm EST.

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SVU StockSVU Stock Chart

Market Cap: 570.97M
Enterprise Value: 7.22B
52-Week High
(Jul 21, 2011): 9.44
52-Week Low
(Jul 12, 2012): 2.61
50-Day Moving Avg: 4.73
200-Day Moving Avg: 6.03

Avg Vol (3 month): 7,066,490
Avg Vol (10 day): 3,235,370
Shares Outstanding: 212.26M
Float: 210.82M
% Held by Insiders: 0.95%
% Held by Institutions: 110.40%
Shares Short
(as of Jun 15, 2012): 98.02M

Craig Herkert, CEO of the supermarket operator, could find himself with a new title, bagboy after the Company announced that it suspended its dividend and needs to restrategize its future. The drop in stock price of the third-largest U.S. grocery chain plunged the most since at least 1980. Q1 earnings came in at $41 million, 0.19 per share, compared to $74 million, 0.35 per share a year earlier. The action forced Supervalu’s penny stock, SVU, to be downgraded this morning by analysts at Longbow Research from a “buy” rating to a “neutral” rating as well as by analysts at JPMorgan Chase from an “overweight” rating to a “neutral” rating.

In the bigger picture, its not just about the dividends being cut that is killing SVU Stock price. Investors were overly optimistic when the stock traded at above $5 when not considering pension liabilities and the grocer’s struggles to reduce the excessive debt that it took on due to the Albertsons acquisition. If you listen closely, you can almost hear: “Good Morning and Welcome To Wal-Mart (NYSE:WMT).” They have put themselves into the drivers seat as the most appealing leveraged buyout candidate among the three largest supermarket chains in America.

Dating itself back to around the time of Manchester United Ltd Football Club, 1871, Supervalu is a behemoth generating roughly $40 billion in annual sales and remaining profitable, but is getting crushed on one side by Wal-Mart and Target (NYSE: TGT) and dollar stores on the other. Its $600 million in annual interest expenses due to $12 billion in total debt cripples any chances for meaningful net profits. Given the size of Supervalu, the enormity of the debt on the books and poor positioning, it is unlikely that the company will be sold as one peice.

Some people think that this spells the end for the grocery giant. We do not subscribe to that theory. However, major changes on the business development front must occur, now. In our view, we would not be surprised to see one or two chains in the SVU family sold, which would raise funds to lower the debt on the books and possibly improve operating performance as well. Reducing the top line to improve margins and the balance sheet are wise moves that would be rewarded by the Street.

Let’s face it, if operating margins and some of the debt can be reduced or transferred via some subsidiary sales, investors would be cheering. The Save-A-Lot segment is unlikely to be touched due to its relatively high profit margins, but we can think of a few that are clearly laggards.

About SVU Stock

Supervalu Inc. is one of the largest companies in the United States retail grocery channel. Additionally, the Company is one of the largest wholesale distributors to Independent retail customers across the United States. Its stores primarily sell perishable and nonperishable grocery, general merchandise, health and beauty care products, fuel, and pharmacy products to shoppers, independent retail customers, single and multiple grocery store independent operators, regional and national chains, mass merchants, and the military.

The company conducts its retail operations under the Acme, Albertsons, Cub Foods, Farm Fresh, Hornbacher’s, Jewel-Osco, Lucky, Save-A-Lot, Shaw’s, Shop ‘n Save, Shoppers Food & Pharmacy, and Star Market banners; and in-store pharmacies under the Osco and Sav-on banners.

Click here to view the SEC filings for SVU.

Bottom Line: These four penny stocks, CTDT, ACTC, GWBU and SVU stock will be at the top of every day traders list tomorrow because rule #1 of making money on pennies is liquidity and these 4 have it. Considering that SVU stock closed within 8 cents of its LOD, they would be a good long since they are a prime target now for a LBO which screams PPS war.

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