We expect SUPERVALU Inc. (SVU) to beat earnings expectations when it reports second-quarter fiscal 2015 results on Oct 16.
Why a Likely Positive Surprise?
Our proven model shows that SUPERVALU has the right combination of two key ingredients to beat earnings.
Positive Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, stands at +9.09%. This is a very meaningful and leading indicator of a likely positive earnings surprise for the company.
Zacks Rank #3 (Hold): Note that stocks with a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) have a significantly higher chance of beating the estimates. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of SUPERVALU’s Zacks Rank #3 and +9.09% ESP makes us confident of an earnings beat.
Factors to Influence Q2 Results
Save-a-Lot stores remain the major growth driver for SUPERVALU and the company is in the process of revamping the stores. The company is focusing on the ‘fresh from farm’ department at these stores as the category has reported decent sales in the past.
We are also encouraged by SUPERVALU’s turnaround initiatives to boost its sales and margins which helped it to counter persistent weakness and deliver healthy results in the past few quarters. The company recent focus on expansion of its retail business and high private penetration are expected to boost sale in the second quarter.
Moreover, the company is expected to deliver higher margins during the quarter due to lower fees paid under the Transition Services Agreement (TSA) and higher price discounts given during the quarter. Under TSA, SUPERVALU provides support services to Albertsons LLC related to the sale of several of SUPERVALU's major brands, such as Albertson's and Acme, to Cerberus Capital. SUPERVALU collects a consulting fee for providing certain transition services to the brands' new owners.
Stocks That Warrant a Look
Here are some stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Keurig Green Mountain, Inc. (GMCR), with an Earnings ESP of +10.26% and a Zacks Rank #3.
Dunkin' Brands Group, Inc. (DNKN), with an Earnings ESP of +2.13% and a Zacks Rank #3.
Domino's Pizza, Inc. (DPZ), with an Earnings ESP of +1.64% and a Zacks Rank #3.
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