Family Dollar Stores: Cheap Bet

NEW YORK (TheStreet) -- Family Dollar Stores(FDO Quote) is the recipient of a timely upgrade ahead of its fourth-quarter earnings report tomorrow.

The discounter was upgraded by BMO Capital Markets to outperform from market perform. Analyst Wayne Hood said the stock has lost 14% of its value since early July and is the cheapest it has been in years.

Shares in the company are currently changing hands at $28.32, down from the stock's 52-week high of $34.63. The current price reflects an increase today of $1.42, or more than 5%.

"We believe investors are presently struggling to find new ideas with reasonable (stock prices), above average returns on capital, strong free cash flow yield and good long-term growth prospects. We see all of these in Family Dollar," he wrote in a note to investors.

Family Dollar has also shown some improvement in its apparel and home categories, segments that have been struggling across the retail industry amid the recession.

Analysts expect the company to report a fourth-quarter profit of 41 cents a share on revenue of $1.81 billion.

On Monday, the U.S. Supreme Court said it declined to hear Family Dollar's appeal in a case involving workers' compensation. The decision made in 2006 to award more than $35 million to 1,424 current and former employees of the company for unpaid overtime wages stood.

Costco Wholesale(COST Quote) is also set to report its quarterly results tomorrow.

-- Reported by Jeanine Poggi in New York

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