On Mar 15, 2013, we upgraded
) to Outperform following its robust results in the fourth
quarter of 2012. With three consecutive positive earnings
surprises and agreement among analysts, the stock also carries a
Zacks Rank #1 (Strong Buy).
Why the Upgrade?
On Feb 21, Safeway's fourth-quarter results surpassed the Zacks
Consensus Estimate by a sizeable margin. Earnings per share rose
58.2% year over year to $1.06, representing a solid double-digit
beat over the Zacks Consensus Estimate, while revenues inched up
1.2% to $13.8 billion, edging past the respective Zacks Consensus
In the fourth quarter, we were keeping an eye on the "Just for U"
loyalty program and its potential to turn the tables for Safeway,
as predicted by management. The success of the program is
reflected in the higher identical-store (ID) sales (excluding
fuel) growth and 5.4 million household registrants (higher than
Evidently, the loyalty program did not disappoint as it was a
major positive catalyst increasing the market share and
profitability for the company. We expect the trend to continue
Moreover, Safeway has undertaken several initiatives to catalyze
future growth. The company plans to spin off its subsidiary
Blackhawk into a public company. Safeway is likely to launch a
Wellness initiative in the second quarter of 2013 to tap growth
opportunities in the fast growing health care market in the
The company's holistic approach to providing wellness products
as well as services to its clientele reflects a deft plan to
combine growth potential of the retail space with that of the
burgeoning healthcare industry.
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Recently, the company stepped up efforts to reduce cost and
shrink expense to improve its bottom line. Safeway also sharpened
focus on its Canadian operations. In the interim, Safeway rewards
shareholders through dividend payments and share repurchases.
Other healthcare stocks such as
) are also likely to do well. These stocks carry a Zacks Rank #1