Zacks Investment Research downgraded shares of Safeway Inc. (SWY) from NEUTRAL to UNDERPERFORM on June 24, 2014, with a target price of $31.00.
Amid a challenging macroeconomic environment coupled with dwindling customer confidence, Safeway is progressing successfully to merge with Albertsons for a deal value of $9.0 billion. Accordingly, the company distributed the remaining 37.8 million shares of Blackhawk Network to its shareholders and is currently looking for monetization of its 49% stake in Casa Ley. We believe the combined company will pose major challenges to its rivals, although uncertainty related to potential antitrust challenges from the FTC persists. Safeway reported an unimpressive first quarter 2014 with adjusted EPS lagging the Zacks Consensus Estimate and revenues remaining in line with the same. Margins continue to disappoint. Likewise, increasing competitive pricing pressures from large peers are other downsides. With the merger expected to complete successfully in the near future, the upside potential of the stock is limited. Accordingly we downgrade the stock to Underperform.
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