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Safeway shares hit 5-year high on analyst upgrade

NEW YORK (AP) -- Shares of Safeway Inc. hit a five-year high Friday after a Credit Suisse analyst upgraded the grocer's stock rating, saying that its new CEO "is open to considering all options" to increase shareholder value.

THE SPARK: Analyst Edward Kelly upgraded Safeway's stock to "Outperform" from "Underperform" and increased its price target to $34 from $26 per share.

THE BIG PICTURE: Safeway and other supermarket chains have been working to focus operations and keep costs low to fight competition from big-box discounters such as Target Corp. and Wal-Mart Stores Inc., which have been expanding their grocery sections.

The company said in June that it would sell its stores in Canada to food retailer Sobeys for nearly $6 billion. Safeway runs about 1,400 stores in the U.S. Besides its namesake supermarket, Safeway owns Vons, Randalls, Carrs and Tom Thumb stores.

In April, the company named Robert Edwards as its new CEO. Edwards was previously the president of the company.

THE ANALYSIS: After meeting recently with Safeway management, Kelly said in a note to clients that the new CEO "is considering many options to enhance shareholder value." He said the company could see more upside if it divests "some of its weaker markets while focusing more resources on regions of strength." Kelly also said the company could cut its share count by over 40 percent in coming months, in part by using some proceeds from its Canadian stores sale.

A Safeway spokesman said the company had no comment on the analyst's note.

SHARE ACTION: Up $1.58, or 6 percent, to $28.17 in afternoon trading Friday. Earlier Safeway's shares reached $28.88, their highest point since July 2008.