Event: Shares of SuperValu (SVU) are trading higher on Thursday thanks to a positive earnings report released before the market opened. The struggling grocery giant reported break-even profits for the quarter ending Sept. 30, 2012. Analysts were looking for a profit of 13 cents per share. Sales were a bit higher than expectations, coming in at $8.04 billion versus an estimate of $8.01 billion. More importantly, the company stated that its strategic alternatives process was yielding productive discussions with several parties. The news of a potential sale of the company or merger had share up more than 10% at one point in early trading.
Analysis: SuperValu has been struggling under the weight of debts accumulated in part due to its acquisition of Albertsons. The grocery giant’s shares have lost 75% of their value in the last year of trading. Short-sellers are betting the company will not survive. The bulls say otherwise. Today’s announcement would seem to indicate that there is indeed an end game for SuperValu that does not include bankruptcy. If so, shares are likely to trade even higher. The stock has heavy volume of more than 7 million shares traded Thursday morning. From a pure speculative standpoint, one might have expected this stock to really jump given the optimism for a potential sale. Given the only slight boost provides traders an opportunity to buy shares today for a quick 3-6 month pop should a deal materialize within that time frame. I believe the odds would favor such an outcome.
Action: Buy shares of SuperValu outright at market prices. Look for 25-50% gain within the next 3-6 months.
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