Billionaire Steve Cohen Thinks SUPERVALU INC. (SVU) Is Just That

According to a filing with the SEC, SAC Capital Advisors, managed by billionaire Steve Cohen and his investment team, owns nearly 11 million shares of SUPERVALU INC. (NYSE:SVU). This gives the fund 5.1% of the total shares outstanding of the former owner of brands such as Star Market, Shaws, and Jewel-Osco (which were recently sold to Cerberus Capital Management) and operator of Save-A-Lot, a discount grocery store. We track 13F filings from hedge funds such as SAC as part of our work researching investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year), and we have SAC only owning about 25,000 shares of Supervalu at the beginning of January (see Cohen’s stock picks). So the fund has essentially built this entire position over the course of 2013.

The third quarter of Supervalu’s fiscal year ended in early December 2012. The company’s revenue decreased by 5% compared to the same period in the previous fiscal year. This decline was concentrated in the Retail Food segment, which was the largest source of SUPERVALU INC. (NYSE:SVU)’s business at over 60% of revenue. The 10-Q shows that Supervalu was barely profitable for the quarter, with pretax income coming in at $31 million; in Q3 of the last fiscal year, this figure was $80 million after adding back special charges. Since depreciation is a major expense for the company, cash flow from operations in the first nine months of the last fiscal year were about $360 million. However, Supervalu used all of that cash on capital expenditures. At a market cap of $1 billion, the stock currently trades at 13 times analyst consensus earnings for the current fiscal year (ending in February 2014). The most recent data shows that 35% of the outstanding shares are held short, so a number of market players are bearish on the stock.

Hedge fund interest in Supervalu was generally limited at the end of the fourth quarter of 2012. Tiger Cub Philippe Laffont’s Coatue Management more than doubled the size of its own position to over 10 million shares, giving it a position worth $25 million (find Laffont’s favorite stocks). Saba Capital initiated a position of 8.2 million shares between October and December, making the grocer one of the five largest single-stock equity positions in its portfolio (check out more stocks Saba was buying).