NEW YORK (TheStreet) -- Shares of Fred's Inc. (FRED) are up 9.77% to $16.41 as the retail discounter is reportedly in talks with Sycamore Partners, a private equity firm, regarding a potential takeover, sources told Reuters.
There is also at least one other party interested in Fred's and talks are still at an early stage, sources said.
Separately, TheStreet Ratings team rates FREDS INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
"We rate FREDS INC (FRED) a HOLD. The primary factors that have impacted our rating are mixed, some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. Among the primary strengths of the company is its solid financial position based on a variety of debt and liquidity measures that we have evaluated. At the same time, however, we also find weaknesses including a generally disappointing performance in the stock itself, feeble growth in the company's earnings per share and deteriorating net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- FRED's debt-to-equity ratio is very low at 0.01 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.36 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 6.7%. Since the same quarter one year prior, revenues slightly dropped by 0.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Net operating cash flow has declined marginally to $16.88 million or 7.31% when compared to the same quarter last year. Despite a decrease in cash flow of 7.31%, FREDS INC is still significantly exceeding the industry average of -79.33%.
- FREDS INC's earnings per share declined by 45.2% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, FREDS INC reported lower earnings of $0.71 versus $0.81 in the prior year. For the next year, the market is expecting a contraction of 12.7% in earnings ($0.62 versus $0.71).
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Multiline Retail industry. The net income has significantly decreased by 46.4% when compared to the same quarter one year ago, falling from $11.41 million to $6.12 million.
- You can view the full analysis from the report here: FRED Ratings Report