Family Dollar (FDO) reported a
negative earnings surprise at the start of the year and didn’t
capitalize on the Wal-Mart memo leak snafu. The stock is a Zacks
Rank #4 (Sell) and is the
Bear of the Day.
Wal-Mart
A mid-February email was leaked from one of the nation’s largest
retailers. In the email the Wal-Mart exec noted that people were
not spending at the mega store and that the company was trending
the worst February in years. The thought at that time was that
customers were feeling the pinch of higher taxes and higher
gasoline prices. Those two headwinds for WMT could have been a
big tailwind for FDO as consumers were thought to “trade down” to
a lower level retailer.
Company Description
Family Dollar Stores, Inc. operates a chain of self-service retail
discount stores primarily for low- and middle-income consumers. It
operates a chain of approximately 7,400 general merchandise retail
discount stores in 45 states. The company was founded in 1959 and
is based in Matthews, North Carolina.
FDO Negative Earnings Surprise
One look at a price chart of FDO and you can see a big drop at the
start of 2013. The company posted a negative earnings surprise of
6%. That miss sent the stock lower by more than 11.5% in the
session following the release.
Competition is intense in the dollar store segment, with Dollar
Tree (DLTR) competing directly with FDO. Another competitors would
be Five Below (FIVE) which offers products for $5 or less. Both
DLTR and FIVE are Zacks Rank #3 (Hold) stocks.
LTM Sees Estimates Moving Lower
Estimates for FDO have been declining of late. The Zacks
Consensus Estimate for 2013 for LTM stood at $4.25 as of
October 2012. The consensus now stands at $3.98. Similarly,
estimates for 2014 have
moved from $4.95 in September 2012 to their current level of
$4.46.
Valuation
Following the big drop in share price, the valuation for FDO has
become more reasonable. The trailing twelve months PE multiple of
16x is less than the industry average of 22x. The forward
earnings multiple of 15x is nearly at an equal discount to the 20x
industry average. Price to book of 5x is well above the 3.6x
industry average while the price to sales multiple of 0.7x is
slightly below the 1x industry average.
The Chart
The 3 month chart below shows the stock doing the Wall Street
equivalent of “being discounted.” A recent recovery since
February lows has this stock trending higher with earnings right
around the corner. The last three earnings reports have seen two
meets and one miss. At present, there might be better alternatives
in the lower end of the retail space.
Brian Bolan is a Stock Strategist
for
Zacks.com. He is the Editor in charge of the Zacks Home Run Investor
service, a Buy and Hold service where he recommends the
stocks
in the portfolio
Brian is also the editor of Follow The Money Trader a
trading service that tracks institutional money flows and looks
for
great stock picks from that data.
Follow Brian Bolan on twitter at
@BBolan1
Like Brian Bolan on
FAMILY DOLLAR (FDO): Free Stock Analysis Report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment