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"We rate SAFEWAY INC (SWY) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, disappointing return on equity and poor profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- SWY's revenue growth has slightly outpaced the industry average of 2.9%. Since the same quarter one year prior, revenues slightly increased by 2.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Net operating cash flow has increased to $367.10 million or 10.73% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -11.38%.
- The current debt-to-equity ratio, 0.51, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that SWY's debt-to-equity ratio is low, the quick ratio, which is currently 0.69, displays a potential problem in covering short-term cash needs.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Food & Staples Retailing industry. The net income has significantly decreased by 86.2% when compared to the same quarter one year ago, falling from $65.40 million to $9.00 million.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Food & Staples Retailing industry and the overall market, SAFEWAY INC's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: SWY Ratings Report