Supervalu (Acme, Save-A-Lot), which operates more than 2,000 supermarkets in the U.S. including Albertsons, Jewel-Osco and Shaw’s, continues to generate press as a  takeover target. Last week, Bloomberg said that Supervalu “is offering private equity shoppers the biggest discount of any supermarket chain in America.”

Here’s why:
  • The company is expected to turn a profit this year for the first time in three years and has the industry’s highest free cash flow yield (an overall return evaluation ratio of a stock). Bloomberg’s data shows that their free cash flow yield is more than 10 times higher than the median for U.S. food retailers with at least $100 million in value.
  • After Supervalu stock fell to a 30-year low last week, its valuation was 3.9 times earnings before interest, taxes, depreciation and amortization. According to Bloomberg, that’s a third less than the industry median and about half the multiple for consumer staples companies in the S&P MidCap 400.
On the other hand, an analyst for Guggenheim Securities LLC points out that buyers may be turned off by Supervalu’s debt. Bloomberg’s data shows that the company’s debt is higher than Kroger’s and Safeway’s, and almost five times the industry median.
Taking all factors into consideration, a strategist at JonesTrading Institutional Services LLC concludes that “the grocery store business is tremendously competitive, but a buyer that has an understanding of retail, would they take a shot at this? Absolutely.”