Earnings Preview: Safeway - Analyst Blog

By
A A A

Safeway Inc. ( SWY ) is set to report its first-quarter 2013 results on Apr 25. Last quarter, this food and drug retailer posted a huge positive earnings surprise of 23.68%. Let's see how things are shaping up prior to the announcement.

Safeway's Growth Profile in the Last Quarter

Safeway's "Just for U" loyalty program was a positive catalyst driving profitability and market share. Based on the loyalty program, management expects ID sales to accelerate in 2013. In addition, the 2013 guidance, which reflects the revival of strong business momentum and prospects of improved execution, boosted investor enthusiasm. We believe that Safeway is set on a high growth trajectory.

We remain concerned about the highly leveraged balance sheet of Safeway. The company continues to operate with a high debt level of $5.2 billion at the end of 2012 as against the year-ago figure of $4.6 billion. As a result, the company's leverage stood at 1.8 at the end of 2012 compared with 1.2 at the end of 2011.

Safeway also witnessed margin contraction due to higher expenses related to the launch of its loyalty program and change in sales mix in the last reported quarter. Notably, the company undertook cost saving initiatives to brace margin pressure.

Earnings Whispers?

Our proven model does not conclusively suggest that Safeway is likely to beat earnings estimate this quarter. This is because a stock needs to have a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method ) as well as a Zacks Rank #1, 2 or 3 for this to happen. This, however, is not the case for Safeway as seen below:

Zacks Earnings ESP: The Most Accurate Estimate stands at 35 cents and the Zacks Consensus Estimate is at 36 cents. This comes to a difference of -2.78%.

Zacks Rank #1 (Strong Buy): Safeway carries a Zacks Rank #1 (Strong Buy).

Although the company has a Zacks Rank #1, a combination with negative ESP makes surprise prediction difficult.

Other Stocks to Consider

Here are some other companies that may be considered as our model shows they have the right ingredients to post an earnings beat this quarter:

Kroger ( KR ), Earnings ESP of +1.14% and a Zacks Rank #1 (Strong Buy)

The Hillshire Brands Co. ( HSH ), Earnings ESP of +18.75% and a Zacks Rank #2 (Buy).

Walgreens ( WAG ), Earnings ESP of +1.05% and a Zacks Rank #3 (Hold).



HILLSHIRE BRAND (HSH): Free Stock Analysis Report

KROGER CO (KR): Free Stock Analysis Report

SAFEWAY INC (SWY): Free Stock Analysis Report

WALGREEN CO (WAG): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: HSH , KR , SWY , WAG

Zacks.com

Zacks.com

More from Zacks.com:

Related Videos

Your Car Is Spying on You
Your Car Is Spying on You           

Stocks

Referenced

0%
100%
67%
100%

Most Active by Volume

73,078,214
  • $30.33 ▼ 3.90%
57,046,796
  • $15.52 ▲ 0.45%
51,290,831
  • $100.57 ▲ 0.04%
39,855,468
  • $8.13 ▲ 1.37%
31,693,544
  • $5.50 ▲ 20.35%
31,532,510
  • $10.33 ▲ 0.78%
31,526,753
  • $39.10 ▲ 47.21%
28,366,542
  • $26.36 ▲ 1.19%
As of 8/20/2014, 04:04 PM

Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com