BMO Capital Markets analysts David J. Chiaverini and Richard Fellinger take a look at Safeway’s unexpected exit from Blackhawk Holdings. Though a surprise, they ultimately stick to their guns regarding Blackhawk, maintaining a Market Perform rating.
Safeway’s exit from blackhawk
Blackhawk Network Holdings Inc (NASDAQ:HAWK) reported modestly disappointing earnings, but the more important event is that Safeway Inc. (NYSE:SWY) unexpectedly announced it will distribute its 38 million HAWK shares (72% of outstanding HAWK shares) to Safeway Inc. (NYSE:SWY) stockholders. We believe this makes sense from Safeway’s perspective, but it is clearly negative for Blackhawk shareholders in the near term given the anticipated technical pressure on Blackhawk Network Holdings Inc (NASDAQ:HAWK)’s stock price – we expect the shareholder base to turn over following the distribution. Importantly, we believe Safeway Inc. (NYSE:SWY)’s planned exit has more to do with it wanting to dispose of a noncore asset as it explores a potential sale rather than there being any significant operational concerns with HAWK. We had previously assumed Safeway would exit in a measured, orderly fashion over time rather than in one fell swoop.
Below is our 13F roundup for some high profile hedge funds for the three months to the end of March 2021 (Q1). Q1 2021 hedge fund letters, conferences and more The statements only include equity positions as 13Fs do not include cash and debt holdings. They also only include US equity holdings. Funds may hold Read More
Impact & Analysis
Blackhawk Network Holdings Inc (NASDAQ:HAWK) reported 4Q13 adjusted EPS of $0.81 (BMO $0.82, cons. $0.84). We view HAWK’s results as modestly disappointing. Key takeaways from the quarter include: 1) total load value of $4.7B was up 17% y/y, which was below our estimate of +19.5% and below recent trends; management noted demand was affected by soft fourth-quarter sales at many US retailers; 2) adjusted net income was roughly in line with our estimate, though it resulted from lower-than-expected commissions and fees revenue being offset from lower distributions to partner commissions; and 3) Blackhawk Network Holdings Inc (NASDAQ:HAWK) will provide its 2014 financial outlook during its earnings call and investor conference tomorrow beginning at 8 a.m. ET; (877) 280-4962(877) 280-4962, passcode 82919903.
Valuation & Recommendation
There is no change to our 2014/2015 adjusted EPS estimates of $1.35/$1.60. Blackhawk Network Holdings Inc (NASDAQ:HAWK) is trading at 20.8x our 2014 adjusted EPS estimate compared with peers at 16.5x. Our $24 price target is based on HAWK’s trading at 18x our 2014 estimate. We rate shares Market Perform.