NEW YORK (TheStreet) -- Shares of Dillard's (DDS) were gaining 8.6% to $120.29 Thursday following reports that activist hedge fund Marcato Capital Management is asking the department store operator to spin off its real estate assets into a real estate investment trust.
Marcato said that creating a REIT could "unlock tremendous value" for the retailer and its shareholders, according to the Wall Street Journal. The hedge fund said that after creating a REIT, the value of both it and Dillard's could reach a combined stock price of $193 a share, a 75% increase from current levels.
Marcato Capital currently holds a 4.9% stake in Dillard's.
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TheStreet Ratings team rates DILLARDS INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:
"We rate DILLARDS INC (DDS) a BUY. This is driven by a number of 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 solid stock price performance, growth in earnings per share, increase in net income, reasonable valuation levels and good cash flow from operations. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 25.91% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, DDS should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- DILLARDS INC has improved earnings per share by 15.0% 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 year. We feel that this trend should continue. During the past fiscal year, DILLARDS INC increased its bottom line by earning $7.13 versus $6.89 in the prior year. This year, the market expects an improvement in earnings ($7.73 versus $7.13).
- 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 8.5% when compared to the same quarter one year prior, going from $50.87 million to $55.20 million.
- Net operating cash flow has significantly increased by 84.25% to $76.06 million when compared to the same quarter last year. In addition, DILLARDS INC has also vastly surpassed the industry average cash flow growth rate of -8.14%.
- You can view the full analysis from the report here: DDS Ratings Report