NEW YORK (TheStreet) -- Shares of Family Dollar Stores (FDO) are up 2.14% to $69.60 in pre-market trade after activist investor Carl Icahn asked the troubled retailer to immediately put itself up for sale, threatening a proxy war to replace the company's entire board if a sale process was not started, Reuters reports.
Icahn recently became Family Dollar's largest shareholder and has also asked that three of his representatives be added to the company's board immediately and be part of a new committee tasked with finding a buyer, Reuters said.
TheStreet Ratings team rates FAMILY DOLLAR STORES as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:
"We rate FAMILY DOLLAR STORES (FDO) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The current debt-to-equity ratio, 0.50, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.17 is very weak and demonstrates a lack of ability to pay short-term obligations.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 7.5%. Since the same quarter one year prior, revenues slightly dropped by 6.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Multiline Retail industry and the overall market, FAMILY DOLLAR STORES's return on equity exceeds that of both the industry average and the S&P 500.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
- You can view the full analysis from the report here: FDO Ratings Report