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Will Supervalu (SVU) Continue Its Winning Streak?

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Supervalu Inc. (SVU - Free Report) is set to report third-quarter fiscal 2014 results on Jan 9. Last quarter, it posted 18.2% positive surprise. Let’s see how things are shaping up for this announcement.

Factors to Consider This Quarter

We are encouraged by Supervalu’s turnaround initiatives which helped counter persistent weakness and deliver healthy first-half fiscal 2014 results. We expect another good quarter from Supervalu as it is scheduled to report the third-quarter results.

Save-a-Lot stores remain the major growth driver of Supervalu and it is in the process of revamping these stores. The company is focusing on the ‘fresh from farm’ department in these stores as the category has reported decent sales in the past. The fresh saw-cut meat program, organized at all the Save-a-Lot stores, also helped the company post better comps in the first half of fiscal 2014.

The company embarked on a fair price promotion strategy (bring down price to competitive level) in fiscal 2013. Although the strategy has been quite well received and we expect the program to help the company gain market share in the longer term, we are concerned that it may pressurize margins in the coming quarters.

Moreover, Supervalu is facing intense competition from other supermarket giants to whom it is losing market share. We are particularly concerned about Germany-based discount chain Aldi, which has announced its plans to open 650 locations in the United States by 2018. This may prove to be detrimental to Supervalu’s comps in the coming quarter.

Earnings Whispers?

Our proven model does not conclusively show that Supervalu is likely to beat earnings this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 to surpass earnings estimate. However, that is not the case here due to the following factors:

Zacks ESP: ESP for Supervalu is 0.00%.

Zacks Rank: Supervalu’s Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

American Express Company (AXP - Free Report) with an Earnings ESP of +1.59% and a Zacks Rank #2 (Buy).

Dollar Tree, Inc. (DLTR - Free Report) with an Earnings ESP of +2.80% and a Zacks Rank #3.

Macy's, Inc. (M - Free Report) with an Earnings ESP of +1.84% and a Zacks Rank #3.

In-Depth Zacks Research for the Tickers Above

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SUPERVALU INC. (SVU) - free report >>

Dollar Tree, Inc. (DLTR) - free report >>

American Express Company (AXP) - free report >>

Macy's, Inc. (M) - free report >>

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