What's Behind Supervalu's (SVU) Gains?

NEW YORK (TheStreet) -- Supervalu (SVU) is gaining over Tuesday's session, a slow recovery from last week's losses. By early afternoon, shares had gained 2.8% to $6.33.

The supermarket owner is gaining on the news outgoing Chairman Robert Miller will be replaced by Gerard Storch, former CEO of Toys 'R' Us. Miller had only held the role since March 2013.

Storch has also held positions as vice chairman of Target (TGT), specializing in its online and grocery businesses.

Last week, the Minnesota-based business fell after third-quarter earnings missed analyst consensus. The company reported net income of 13 cents a share, missing estimates by a penny, and revenue of $4.01 billion, falling short of expectations by $40 million.

Since the beginning of the year, shares have declined 13%.

SVU Chart SVU data by YCharts

TheStreet Ratings team rates SUPERVALU INC as a Sell with a ratings score of D. The team has this to say about their recommendation:

"We rate SUPERVALU INC (SVU) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. Among the areas we feel are negative, one of the most important has been poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The gross profit margin for SUPERVALU INC is currently extremely low, coming in at 14.18%. Regardless of SVU's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 0.77% trails the industry average.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 6.4%. Since the same quarter one year prior, revenues slightly dropped by 1.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • Net operating cash flow has increased to -$42.00 million or 27.58% when compared to the same quarter last year. In addition, SUPERVALU INC has also vastly surpassed the industry average cash flow growth rate of -48.27%.
  • This stock has increased by 125.00% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the future course of this stock, we feel that the risks involved in investing in SVU do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.
  • SUPERVALU 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. This trend suggests that the performance of the business is improving. During the past fiscal year, SUPERVALU INC continued to lose money by earning -$1.23 versus -$4.91 in the prior year. This year, the market expects an improvement in earnings ($0.56 versus -$1.23).