3 Discount Retail Buys For a Happy New Year

NEW YORK (TheStreet) -- The leftovers have been eaten, the stores have been scoured for sales bargains and the Christmas decorations have been dusted off and hung. As we enter the final stretch of 2013, which of the penny-pinching retailers are the best bet for a happy new year and many returns?

1. Target (TGT)

TheStreet Ratings team rates Target Corp (TGT) as a Buy with a ratings score of B. The team has this to say about their recommendation:

"We rate Target Corp (TGT) 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 and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had subpar growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • TGT's revenue growth has slightly outpaced the industry average of 1.4%. Since the same quarter one year prior, revenues slightly increased by 1.9%. 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 debt-to-equity ratio is somewhat low, currently at 0.92, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels.
  • Target Corp's earnings per share declined by 43.8% 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, Target Corp increased its bottom line by earning $4.53 a share vs. $4.29 a share in the prior year. For the next year, the market is expecting a contraction of 20% in earnings ($3.63 vs. $4.53).
  • In its most recent trading session, TGT has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Multiline Retail industry and the overall market on the basis of return on equity, Target Corp has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.

2. Dollar General (DG)

TheStreet Ratings team rates Dollar General Corp  (DG) as a Buy with a ratings score of A. The team has this to say about their recommendation:

"We rate Dollar General Corp (DG) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 1.4%. Since the same quarter one year prior, revenues rose by 11.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Dollar General Corp has improved earnings per share by 17.2% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, Dollar General Corp increased its bottom line by earning $2.86 a share vs. $2.22 a share in the prior year. This year, the market expects an improvement in earnings ($3.22 vs. $2.86).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the Multiline Retail industry average, but is less than that of the S&P 500. The net income increased by 14.6% when compared to the same quarter one year prior, going from $214.14 million to $245.48 million.
  • Net operating cash flow has significantly increased by 86.27% to $336.89 million when compared to the same quarter last year. In addition, Dollar General Corp has also vastly surpassed the industry average cash flow growth rate of -12.85%.
  • The current debt-to-equity ratio, 0.55, 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 0.10 is very weak and demonstrates a lack of ability to pay short-term obligations.

3. Family Dollar Stores (FDO)

TheStreet Ratings team rates Family Dollar Stores  (FDO) as a Buy with a ratings score of A. The team has this to say about their recommendation:

"We rate Family Dollar Stores (FDO) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. 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:

  • FDO's revenue growth has slightly outpaced the industry average of 1.4%. Since the same quarter one year prior, revenues slightly increased by 5.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Family Dollar Stores has improved earnings per share by 27.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, Family Dollar Stores increased its bottom line by earning $3.83 a share vs. $3.58 a share in the prior year. This year, the market expects an improvement in earnings ($4 vs. $3.83).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Multiline Retail industry average. The net income increased by 26.3% when compared to the same quarter one year prior, rising from $80.93 million to $102.21 million.
  • Net operating cash flow has increased to $146.62 million or 26.91% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -12.85%.
  • The current debt-to-equity ratio, 0.32, 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 0.24 is very weak and demonstrates a lack of ability to pay short-term obligations.

Also see: The 10 Drunkest States in America... and the 10 most sober.

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