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SUPERVALU (SVU) Gains 9% on Hearsay of Business Divestiture

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If rumors are to be believed, SUPERVALU INC is exploring possible options to divest its business. However, management has not issued any official statement on this matter. Per sources, SUPERVALU is working with renowned investment bankers, Lazard Ltd (LAZ - Free Report) and Barclays Plc, to analyze a divesture. It is believed that pressures from activist investors led the company to consider such a strategic move.

While this latest buzz keeps the future of this supermarket chain under veils, investors look quite excited. Evidently, shares of this Zacks Rank #1 (Strong Buy) company gained almost 9.3% on April 6. This is considered a respite for investors, who have been worried for long about SUPERVALU’s sluggish retail segment. Thanks to such concerns, the stock has lost 1.1% in the past three months, though it fared better than the industry’s decline of 10.3%.

Well, if such rumors can drive positive sentiments among investors, it is to be seen how the stock will eventually react if the plans are put into action. On that note, let’s now take a closer look at how this decision might impact the company, if held true.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Relief From Ailing Retail Unit

The company’s supposed plans to divest its business is likely to provide the much-needed turnaround in the sluggish retail segment. SUPERVALU’s retail stores have been bearing the brunt of brick-and-mortar sale disruption, accountable to consumers’ ever-growing enthusiasm for digital transactions, largely fueled by the online giant, Amazon (AMZN - Free Report) .

Due to such headwinds, SUPERVALU has been resorting to store closures. Consequently, the company’s identical store sales in the retail segment have declined over the past 11 quarters. During fiscal 2016, the company sold nearly 1,350 Save-A-Lot stores. In other recent developments, the company announced plans to sell 21 of its Farm Fresh Food & Pharmacy stores. In this regard, the company has entered into definite agreements with companies like Harris Teeter, Food Lion and the Mid-Atlantic Division of Kroger (KR - Free Report) . SUPERVALU is expected to undertake more Farm Fresh store closures in the near future.

Will Divesture Add Further Boost to Wholesale?

While SUPERVALU has been shuttering its retail stores, it has also been undertaking endeavors to fortify foothold in the wholesale arena, primarily through acquisitions. In this regard, the company concluded the buyout of Associated Grocers of Florida in the beginning of the fourth-quarter fiscal 2018, while it bought Unified Grocers in June 2017. Notably, Unified Grocers contributed sales worth about $860 million to SUPERVALU’s Wholesale business during the third quarter of fiscal 2018 and the company is on track to generate targeted synergies from this buyout.

Apart from this, the company has supply agreements with retailers like America’s Food Basket, which is expected to fuel sales growth in the segment. Also, management is committed toward enhancing operating efficiency, reducing costs as well as optimizing distribution channels, information technology and logistics to support the growth of the wholesale business.

 That said, let’s wait and see in which direction the company moves in the forthcoming periods and whether the aforementioned rounds will continue boosting investors optimism on the stock.  

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