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Safeway's Blackhawk Settles IPO Price

Zacks Equity Research

Safeway's (SWY) majority-owned subsidiary Blackhawk Network Holdings disclosed that it has altered the registration statement for its initial public offering (:IPO) with the Securities and Exchange Commission. The company now expects to raise up to $220 million from the IPO.

Last month, Blackhawk announced a registration statement filing for the highly anticipated IPO of a minority stake. However, the company did not disclose the number of shares and the price range for the offering at the time.

The company has now priced 10 million shares at an estimated offering price of $20 to $22 per share. The IPO will comprise solely of shares by current stockholders, including Safeway. The underwriters have an option to purchase another 1.5 million shares.

Blackhawk provides prepaid products and payment services to consumers through a network of retail store locations in the U.S. and 18 other nations. Additionally, Blackhawk provides card production services, a secondary market for prepaid cards and has recently introduced digital wallet services. Blackhawk also has gift card businesses in U.K. and Australia.

Investors have been looking forward to the IPO ever since Safeway revealed its plan to spin off Blackhawk into a public company in Sep 2012. Given the revival of growth trends and the recent bullish run of the stock, the timing of the announcement is apt. While Safeway has been on a strong uptrend, the stock is likely to appear more valuable on the back of the announcement.

The spin off of its Blackhawk subsidiary reflects solid future growth plans for Safeway. Following the public offering, we expect the company to sharpen focus on its mainstream retail operations and improve its competitive position against peers. Safeway is expected to launch a Wellness initiative in the second quarter of 2013 to tap growth opportunities in the fast growing healthcare market in the U.S.

Given Safeway’s solid growth potential, excellent fundamentals and robust dividend growth rate, estimates for 2013 have been rising over the last 60 days. Accordingly, the stock carries a Zacks Rank #1 (Strong Buy). Other Zacks Rank #1 healthcare stocks are Cepheid (CPHD), Conceptus (CPTS) and Cyberonics (CYBX).

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