NEW YORK (TheStreet) -- Shares of Family Dollar Stores Inc. (FDO) are climbing higher by 22.82% to $74.50 in pre-market trading on Monday following the announcement that the general merchandise retailer will be purchased by Dollar Tree Inc. (DLTR) - Get Report for almost $8.5 billion.
The merger will create the largest discount retailer in North America, Reuters reports.
The retailer will operate over 13,000 stores in 48 states and five Canadian provinces, with annual sales expected to exceed $18 billion, Family Dollar said.
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The transaction is expected to close in early 2015.
Shares of Dollar Tree are up 9.90% to $59.59 in pre-market trading today.
Separately, 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 revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 6.8%. Since the same quarter one year prior, revenues slightly increased by 3.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The current debt-to-equity ratio, 0.47, 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 0.20 is very weak and demonstrates a lack of ability to pay short-term obligations.
- 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.
- FAMILY DOLLAR STORES's earnings per share declined by 32.4% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, FAMILY DOLLAR STORES increased its bottom line by earning $3.83 versus $3.58 in the prior year. For the next year, the market is expecting a contraction of 19.3% in earnings ($3.09 versus $3.83).
- You can view the full analysis from the report here: FDO Ratings Report