Investors, in prosperous times, might look down their noses at Dollar Tree (DLTR) (Stock Quote: DLTR) and Family Dollar (FDO) (Stock Quote: FDO) (DLTR) (FDO) as stores that occupy the bottom rung of the retail food chain.
But given the economic conditions, these bargain emporiums have now risen to "buy" status. (The companies' shares, that is, and—well, maybe even the stuff they peddle for a buck a throw.)
Family Tree and Family Dollar stand as the only general multiline retail firms with "overall grades" from TheStreet.com Ratings in the "B" range, qualifying as "buy" recommendations.
Retail heavyweights such as Macy's (M) (Stock Quote: M) (M) , Nordstrom (JWN) (Stock Quote: JWN) (M) (JWN) , Target (TGT) (Stock Quote: TGT) (M) (JWN) (TGT) and Kohl's (KSS) (Stock Quote: KSS) (M) (JWN) (TGT) (KSS) find themselves burdened with "risk grades" in the "D" range. With "overall" marks in the "C" area, each is considered a "hold." Saks (Stock Quote: SKS) (M) (JWN) (TGT) (KSS) (SKS) , along with upscale Nordstrom, recently suffered credit downgrades from Moody's. TheStreet.com Ratings recommendation for Saks dwells in "sell" territory.
Dollar Tree operates more than 3,400 variety retail stores in 48 states, while more than 6,500 Family Dollar Stores can be found in 44 states. Each sells most every item for an even buck.
(MCD) Despite the economic slump, the consensus of analysts is that after-tax earnings per share of Dollar Tree will advance 7.1% in the current year while Family Dollar's will climb 13%. Next year, Dollar Tree's net is expected to grow 10.7%, while Family Dollar will expand 8.3%.
(MCD) Each has attained a respectable return on equity of more than 18%.
Although the pair of retailers enjoy relatively low debt burdens, their prices of 15.1 times current estimated earnings per share (for Dollar Tree) and 16.5 times this year's expected net (for Family Dollar) are largely discounting their expected growth. The multiples of three times book for Dollar Tree and 3.3 for Family Dollar also seem to fully reflect their projected earnings gains.
TheStreet.com Ratings' evaluation model quantitatively analyzes a company's valuation metrics, current financial situation and consensus expectations of future earnings growth. A broad range of fundamental and technical data is condensed into a single risk-adjusted composite mark. Grades for most companies range from A-plus to E-minus, with bankrupt firms assigned marks of F.