Salomon Upgrades Safeway to 'Outperform'

Analyst Lisa Cartwright likes the grocer's strategy of lowering prices and differentiating stores to jumpstart long-term sales

Salomon Smith Barney upgraded Safeway (SWY ) to outperform from underperform, and upgraded the supermarket sector to overweight from underweight.

Analyst Lisa Cartwright says the realistic earnings picture now is on the horizon, after many downward revisions and valuations have bottomed out. She says a bounce-back in consumer spending and a pick-up in food inflation could boost grocers' top lines in 2003.

Cartwright notes Safeway's management has developed a meaningful strategy of lowering prices and differentiating stores in order to improve its competitive position and jumpstart sales in the long term. She says Safeway has reduced its capital expenditures to more rational levels. She sees 78 cents fourth quarter earnings per share, and $2.77 for 2002, as well as $2.55 for 2003.

Cartwright is keeping her outperform rating on Kroger (KR ), and her underperform rating on Albertson's (ABS ).