Why SUPERVALU INC. Stock Popped and Then Dropped Today

Markets Motley Fool

What happened

Continue Reading Below

SUPERVALU INC. (NYSE: SVU) stock was all over the place today as shares initially jumped after the company reported second-quarter earnings and announced an acquisition. However, after climbing as much as 11.8%, the stock was deeply in the red by 11:30 a.m. EDT, and was trading down 10.6% as of 3:08 p.m. EDT.

It's easy to see why shares rallied in the morning. SUPERVALU beat earnings and revenue estimates, and the market seemed to cheer news that it would acquire Associated Grocers of Florida, but the subsequent slide was more mysterious. The stock began selling off during this morning's earnings call and fell sharply through the end of it, though there was no substantial change to the company's guidance.

So what

Adjusted earnings per share in the quarter improved from $0.21 a year ago to $0.46, which beat estimates of $0.35. Meanwhile, revenue surged 35%, to $3.8 billion, driven by the acquisition earlier this year of wholesaler Unified Grocers. That edged out expectations of $3.78 billion.

SUPERVALU now derives the majority of its sales from wholesaling to independent supermarkets rather than operating its own, and that trend will pick up after its acquisition of Associated Grocers of Florida, which the company took over in a transaction worth $180 million. AG of Florida's revenue last year was $650 million, and SUPERVALU sees annual synergies of $16 million from the merger.

Continue Reading Below

Now what

SUPERVALU shares have been pounded this year, with the stock down nearly 50% year to date, as worries continue to mount over increasing competition in the supermarket industry, especially after Amazon acquired Whole Foods. The tumble forced the company to declare a 7-for-1 reverse stock split earlier this year.

SUPERVALU's retail division continues to struggle, as comparable sales fell 3.5% in the recent quarter, and that figure and the wider industry trend likely pushed the stock down after its initial pop. Still, pivoting to wholesale seems like a smart move, and this quarter's results were solid. If the company can deliver on its guidance, the stock could rebound, or at least finally hit a bottom.

10 stocks we like better than SuperValu
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and SuperValu wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of October 9, 2017

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.