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Zacks Investment Research reports Safeway has been consistently delivering positives earnings surprises as it continues to grow its margins and the market share. Further the company had been rewarding its investors with a solid dividend growth rate and attractive share repurchases. No wonder, the stock has been on a strong uptrend, but it still looks good on some of the valuation metrics.

Excellent growth potential and a solid record of returning cash to shareholders make this Zacks Rank #1 (Strong Buy) stock an attractive long-term investment.

About the Company

With 1,641 stores in the Western, Southwestern, Rocky Mountain, and Mid-Atlantic regions of the United States and in western Canada, Safeway is one of the largest food and drug retailers in North America. The company operates stores under a variety of names including Vons, Dominick's, and Randalls and Tom Thumb.

Solid Fourth Quarter Results

Safeway reported its fourth quarter 2012 results on February 21, 2013. Fourth-quarter earnings were $1.06per share, up 58% from the prior-year quarter, and significantly above Zacks consensus estimate.

According to the management, expansion of the personalized discount program “just for U”and fuel loyalty programs were instrumental in driving market share gains and profits.

This was the company’s third consecutive positive earnings surprise. Further, the management’s earnings guidance for 2013--$2.25 to $2.45 per share-- was also above street’s estimates.

With successful branding efforts, the retailer has been able to grow its margins as well as the market share. The company’s cost cutting efforts also appearing to be helping the bottom line.

Excellent Record of Returning Cash to Shareholders

Safeway also continues to reward its shareholders with attractive dividend and share repurchases. During 2012,Safeway repurchased 57.6 million shares of its common stock for a total cost of$1.24 billion—about 20% of its current market cap of $6.1 billion. Its dividends have grown at a rate of about 20% during the last five years.

Positive Earnings Estimates Revisions

As a result of solid results and updated guidance, analysts have been raising their estimates for the company. During the last 30 days, four analysts have raised their estimates for the current quarter and eight have raised their estimates for the current year.

Solid Future Growth Plans

Safeway is planning spin off its Blackhawk subsidiary. It is also working towards launching a Wellness initiative to penetrate the fast growing health care market. Further the company is also expanding its international operations.

The Bottom Line

SWY is a Zacks Rank#1 (Strong Buy) stock. It also has a longer-term Zacks recommendation of “Outperform”. Though Zacks Industry rank of 231 out of 265 indicates the likelihood of slight weakness in the short term, we think that Safeway will be able to outperform its peers in the industry.

Safeway is current trading at trailing 12-month earnings multiple of 11.1 compared with the industry average of 16.3.

Further with a dividend yield of 2.8%, excellent fundamentals, and a solid growth potential, I believe that this stock will be a nice addition to any portfolio.

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