Second, it's an open question whether Safeway's "Lifestyle" remodeling/store renovation strategy will pay-off in the U.S.'s new 'frugal consumer' era and amid intense competition in its key California market. The grocery market is shifting decidedly toward value and away from higher-margin extras. To be sure, there will always be a niche for gourmet delis and upscale grocers, but the next 3-5 year period will see typical Americans returning in droves to conventional supermarkets, in search of value. The above suggests continued market share declines for Safeway.

Third, the California economy's stabilization may be several quarters off, and that points to flat-to-declining grocery dollars in the Golden State. The First Call FY2009/FY2010 EPS estimates for SWY are $1.08 to $1.19.

Technically, the news is slightly better. Safeway's stock chart has broken out of an $18-21 trading range, to the upside, but the move is young. Further, the stock also is on the verge of recording a golden cross – in which the 50-day moving average crosses above the 200-day moving average: if it does, that would be a bullish sign. In sum, the technical picture is mixed.

Stock Analysis: Safeway Inc. is a high-risk stock. Don't Buy Safeway's shares if you can not tolerate high risk. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in SWY. Under any circumstance, don't buy more than 25% of your SWY position before December 2009. Sell/Stop Loss if you were to buy shares in this company: $14.25.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.