Why Family Dollar Stores (FDO) Stock Continues To Trade Higher

NEW YORK (TheStreet) -- Shares of Family Dollar Stores (FDO) are up 14.14% to $69.09 after Carl Icahn (IEP) took a 9.39% stake for $265.8 million in the chain of general merchandise retail discount stores, according to a filing on Friday, becoming its largest shareholder.

Now the company adopted a one-year poison pill with a trigger of 10%. Icahn said he would consider pushing for a merger with Dollar General Corp. (DG), Reuters reports.

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Dollar General's shares are up 10.83% to $64.27.

The rights plan is not designed to prevent an offer to acquire the company but to allow its board "adequate time to consider any and all alternatives," Family Dollar said today.

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 multiple 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 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 7.4%. 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.
  • FAMILY DOLLAR STORES's earnings per share declined by 33.9% 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 17.8% in earnings ($3.15 versus $3.83).
  • You can view the full analysis from the report here: FDO Ratings Report

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