UPDATE 1-RESEARCH ALERT-BMO starts Safeway with outperform

Sept 1 (Reuters) - BMO Capital Markets began coverage of Safeway Inc (SWY.N) with an "outperform" rating, saying the supermarket chain may meet or even beat third- and fourth-quarter consensus earnings estimates.

"As we round the corner to FY2010, comparisons ease on deflation, so the top line should recover slightly," analyst Karen Short said, adding that sales could have decelerated in the third quarter.

Safeway is battling the perception its store prices are higher than those of peers such as Kroger Co (KR.N) and Supervalu Inc (SVU.N) and it has been working to offer more competitive prices on everyday items. [ID:nN12326481]

"While these efforts should impact margins, we think the EPS bar has been reset sufficiently low for the remainder of FY2009 and see limited downside to earnings or the stock," Short wrote in a note to clients.

In July, Safeway cut its profit forecast for 2009 amid falling food prices and tight consumer spending.

The analyst set a price target of $23 on the company's stock, which was up 8 cents at $19.13 in midday trade Tuesday on the New York Stock Exchange.

BMO Capital also began coverage of Great Atlantic & Pacific Tea Co Inc (GAP.N) with an "underperform" rating, saying Pathmark Stores, that was acquired by the company in December 2007, will likely pressure results until the fourth quarter of 2009.

The brokerage set a price target of $6 on the stock, which was down 6 percent at $6.32.

BMO Capital began coverage of eight other retailers, including Casey's General Stores Inc (CASY.O) and Supervalu, with a "market perform" rating.

For the alerts, double click [ID:nWNAB5596] (Reporting by Vidya Lakshmi in Bangalore; Editing by Deepak Kannan)