SuperValu: Forgive the Analysts for They Know Not What They Do

Thanks to a UBS downgrade, SUPERVALU (SVU) took a 10% hit this past week, and in the process made new 52-week and five-year lows, before bouncing back more than 3%, aided by the buying help of bargain hunters and short covering. UBS trimmed its 2009 earnings estimates about 14%, from $3.00 to 2.60 and slashed its one year price target at twice the rate of its earnings cut, from $36 to $26. When it rains, it pours. To add insult to injury this occurred just after Jefferies and Company's coverage initiation last week, with an under perform rating. I expect sooner than later both these analysts will come out of their stupor and reevaluate SVU's prospects based on more "realistic" levels.

Guidance reduction: Management reduced 2009 full year guidance a mere 1.5% from $3.25 to $3.20 based on a slowdown of consumer spending. Wall Street overreacted despite SVU soundly beating first quarter earnings estimates and pounded the shares southward to appetizing levels. Management knows the routine, "Under promise, in order to over deliver" and their conservative guidance solidifies this premise.