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Credit Suisse downgraded its rating of Safeway Inc. on Monday, saying the grocer needs to prove it can drive an earnings recovery and beat analyst estimates.
That could be a tough request for the grocery chain, given the highly competitive, low-return environment industry these days, Credit Suisse analyst Edward Kelly said in a research note.
Kelly downgraded his rating on Safeway to "Neutral" from "Outperform", saying a sharp earnings recovery is unlikely.
Safeway is expected to improve its sales and earnings results during 2010, Kelly said. However, grocers like Safeway have been betting on inflation to help improve results and he estimates that competition will continue to pressure margins.
Shares of Safeway fell 12 cents to close at $26.22.