Safeway Upbeat on 2013 Outlook

Recently, Safeway Inc. ( SWY - Analyst Report ) debriefed investors about its financial goals for 2013 and reviewed its 2012 performance during its annual investor conference. Following the confab, shares of this food and drug retailer touched a new 52-week high of $25.14 on Wednesday, Mar 6. The closing price of $23.94 reflects a solid year-to-date return of 30.5% for the stock.

2013 Forecast

Safeway envisages earnings per share in the band of $2.25 and $2.45 for 2013 that reflects annual growth in the range of 4.9% to 14% (based on adjusted earnings of $2.15 in 2012). The current Zacks Consensus Estimate of $2.25 hovers around the lower end of Safeway’s guidance range. The company attributed the earnings upside to its expectation of identical stores (excluding fuel) sales growth of 2% to 3%. This compares with the annual growth of 0.5% for identical stores (excluding fuel) in 2012.

On the margin front, Safeway expects operating profit margin to decline by 11-21 basis points (bps) in the ongoing year. Excluding fuel and benefit from legal settlements, operating profit margin is expected to remain flat or inch up by 10 bps during 2013. Safeway expects to incur capital expenditure in the range of $1 billion to $1.1 billion throughout the year. Free cash flow is anticipated to be in the band of $0.85 billion and $0.95 billion.

2012 Recap

As reported earlier, Safeway’s earnings of $2.27 in 2012 surpassed its original guidance of $1.90-$2.10. The company also exceeded its projection for free cash flow. However, identical store (excluding fuel) sales growth came in lower than the original guidance of 1%-2% sales growth.

Several strategic steps undertaken by Safeway in 2012 such as the rollout of the ‘just for U’ loyalty program and fuel partnerships with Chevron ( CVX - Analyst Report ) and ExxonMobil ( XOM - Analyst Report ) among others supported market share gain and volume growth in the U.S. Going forward, the company is optimistic that sustained momentum from its initiatives will yield positive outcome.

Safeway continues to tick higher on positive driving events. Estimate revision trend also reflects bullish sentiments towards the company’s performance in the current year. Accordingly, the stock carries a Zacks Rank #2 (Buy). Another Zacks Rank #2 healthcare stock is CVS Caremark ( CVS - Analyst Report ) .