Safeway Inc (NYSE: SWY) Q3 2011 Price Target

Recent price: 22.09$

P/E Ratio: 15.99

3 Months Target Price: 26$

Company Description

Safeway Inc. is a food and drug retailer in North America. As of January 1, 2011, the Company had 1,694 stores. The Company’s the United States retail operations are located in California, Oregon, Washington, Alaska, Colorado, Arizona, Texas, the Chicago metropolitan area and the Mid-Atlantic region. The Company’s Canadian retail operations are located in British Columbia, Alberta and Manitoba/Saskatchewan. In support of its retail operations, the Company has network of distribution, manufacturing and food-processing facilities. Safeway owns and operates GroceryWorks.com Operating Company, LLC (GroceryWorks), an online grocery channel doing business under the names Safeway.com, Vons.com and Genuardis.com (collectively Safeway.com). Safeway also has a 49% ownership interest in Casa Ley, S.A. de C.V. (Casa Ley), which operates 168 food and general merchandise stores in Western Mexico.

Confidence Margins

Strong resistance $27.04 (+22%)

Light resistance $25.43 (+15%)

Light support $21.30 (-4%)

Strong support $20.44 (-7%)

Recommendation

This company has seen it's share of drama over the last weeks over it's credit facility and shares of Safeway Inc have been surrendered by shareholders. Current prices offers a good entry point to investors as it accounts for all the accumulated pessimism currently present in the market.

Entry strategy

For the cautious investor:

Buy the stock for 22.50$ or less.

For the risk-taking trader:

The september 2011 23$ out-of-the-money call option contract seems to be the right position to take, they can be acquired for about 80$ per contract.

Exit Strategy

For the cautious investor:

Sell when the stock reaches 26$, or keep it until 27$ if you are more bullish in your own analysis.

For the risk-taking trader:

The contracts should be kept until the underlying reaches 26$. This should provide a very interesting return if the underlying reaches the target price as the contracts will get in the money.