Zacks Investment Research downgraded shares of Safeway Inc. (SWY) from OUTPERFORM to NEUTRAL on May 21, 2013, with a target price of $26.00.
Safeway reported a tepid first quarter with adjusted EPS of $0.35 missing the Zacks Consensus Estimate by a penny despite 16.7% year over year growth. Revenues were flat year over year at $10 billion, trailing the Zacks Consensus Estimate of $10.2 billion. On the bright side, Safeway's Just for U loyalty program was a major positive catalyst driving profitability and market share. Also, Safeway has a deft plan to save costs and sharpen focus on the U.S. retail market. However, despite strategic initiatives, Safeway faces sluggish growth. During the quarter, the company posted soft fuel sales. Besides, margin pressure was another headwind. Safeway also faces tough competition from other players in the market. Although economic recovery is expected to support business momentum for this retail giant, amidst a tough economic scenario, there are no near-term solutions to the current issues. Thus, we downgrade the stock to Neutral.
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