Safeway Inc. Stock Buy Recommendation Reiterated (SWY)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK ( TheStreet) -- Safeway (NYSE: SWY) has been reiterated by TheStreet Ratings as a buy with a ratings score of B. The company's strengths can be seen in multiple areas, such as its increase in stock price during the past year, impressive record of earnings per share growth, increase in net income, attractive valuation levels and notable return on equity. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

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Highlights from the ratings report include:
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • SAFEWAY INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, SAFEWAY INC increased its bottom line by earning $2.31 versus $1.53 in the prior year. This year, the market expects an improvement in earnings ($2.35 versus $2.31).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Food & Staples Retailing industry. The net income increased by 63.1% when compared to the same quarter one year prior, rising from $72.90 million to $118.90 million.
  • SWY, with its decline in revenue, slightly underperformed the industry average of 3.9%. Since the same quarter one year prior, revenues slightly dropped by 0.1%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

Safeway Inc., together with its subsidiaries, operates as a food and drug retailer in North America. Safeway has a market cap of $5.4 billion and is part of the services sector and retail industry. The company has a P/E ratio of 9.00, below the S&P 500 P/E ratio of 18.00. Shares are up 25.5% year to date as of the close of trading on Friday.

You can view the full Safeway Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

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