Barclays Says Family Dollar Stores Merger Delay Is 'Harmful'

Barclays commented on Family Dollar Stores, Inc. FDO after the company missed Q1 expectations and noted that the merger delay is “harmful.”

Analyst Meredith Adler commented that while results were soft and Q2 may not be much better there were some positive points from management. “1) the bulk of FDO's price investments are completed, and going forward it will be adjusting pricing based on competition and consumer behavior; 2) sales during the holiday were better for some discretionary products...and 3) shrink was flat in the quarter, and store manager turnover is stable.”

As for M&A, Adler thought that Dollar General DG “would have to raise its bid substantially to get shareholders to wait for it to sign a merger agreement with FDO. And if DLTR walks away after a "no" vote by shareholders, we think the risk of no deal at all goes up noticeably. We therefore see the likelihood rising that shareholders will say "yes" to DLTR. And if DLTR were to sweeten its bid slightly, the likelihood would be even higher.”

The firm maintained an Equal-Weight rating, $82 price target and reduced its 2Q15 EPS estimate from $0.66 to $0.64, but raised its FY15 EPS from $2.44 to $2.48.

Family Dollar Stores, Inc closed at $78.51 Thursday, down 0.44 percent.