Is Safeway (SWY) safe at $19.00 per share?


Safeway has been a consistent dividend grower since 2005.  The company paid no dividend prior to 2005.


Dividend: $0.145 per quarter

Dividend yield: 3.05% (this is a decent dividend yield, but it is not a high dividend stock)

Dividend payout ratio:  34%  ($0.58 DIV/$1.70 EPS)

EARNING POWER  $1.37 per share @ 339.9 million shares

            EPS                   Net inc.             Shares               Adj. EPS

2006     $1.94                $870.6 M           447.8 M             $2.56

2007     $1.99                $888.4 M           445.7 M             $2.61

2008     $2.21                $965.3 M           436.3 M             $2.84

2009     ($2.66)             ($1,097.5 M)     436.3 M             ($3.22)

2010     $1.55                $589.8 M           379.6 M             $1.74

2011E    $1.70*              $577.8 M           339.9 M             $1.70

*mean earnings estimate according to Wall Street valuations on

I think Wall Street analysts have overestimated Safeway’s ability to earn $1.70.  They’re 75% through the fiscal year, but they have only earned 51% of the analyst’s estimates.  I don’t think the company will earn another $0.82 in the fourth quarter of 2011.

Results from the first three quarters of 2011:

1Q        $0.07                $25.1 M             339.9 M             $0.07

2Q        $0.41                $145.8 M           339.9 M             $0.43

3Q        $0.38                $130.2 M           339.9 M             $0.38

Total     $0.86                $301.1 M           339.9 M             $0.88

Six year average adjusted earnings per share is $1.37.

Consider a contrarian buy below $10.96 (8x average adjusted earnings)

Consider a value buy below $16.44 (12x average adjusted earnings)

Consider speculative selling above $27.40 (20x average adjusted earnings)

Safeway is currently trading at 13.8 times average adjusted earnings.


Assets and shareholder equity are trending slightly down.  That isn’t good.  Safeway does not possess a strong balance sheet.


Book value per share: $12.79

Price to book value ratio: 1.48  (this is good)

Current ratio: 0.87 (over 2.0 is good)

Quick ratio: 0.16 (over 1.0 is good)  Safeway has very little cash to cover current liabilities.


Safeway is not safe at $19.00 per share.  Its falling earnings this year and the horrible US economy will hurt the price of Safeway’s shares.  However, Safeway is a buy when its price is below $16.44.  Its mediocre dividend yield is bolstered by its growth pattern.  I need to investigate more to determine why its balance sheet is shrinking.  The Balance sheet is average right now.


DISCLOSURE  I don’t own any positions in Safeway (SWY).

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Published in: on November 3, 2011 at 12:23 am  Leave a Comment  

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