Analyst: Family Dollar, Dollar Tree 'Clearly' Have 'A Lot of Work Ahead'

Family Dollar Stores, Inc. FDO reported earnings ahead of the bell to which the market is responding with a collective shrug. The stock is down 0.4 percent after reporting EPS of $0.74 (excluding $0.07 in merger-related expenses) versus expectations of $0.73. Additionally, Dollar Tree, Inc. DLTR also provided an update on the merger.

Analysts at FBR & Co. said in reaction that Dollar Tree "clearly has a lot of work in front of it," noting that the number of stores that the FTC would like to see divested is 340 – up from 300 prior. FBR opined that the reason that the FTC was requiring more stores to be sold is in expectation that some of those stores would fail under new management. Notably, FBR said that it does not expect Dollar General Corp. DG to be a major buyer of these 340 stores.

However, beyond the divestiture, FBR believes that Family Dollar's challenges are "far more structural" than the Street is willing to acknowledge. While Dollar Tree will eventually be able to "fix" Family Dollar, in FBR's view, the integration will be "vastly more troubled and time consuming" than many believe.

FBR has a Market Perform rating on Family Dollar. Family Dollar recently traded at $79.66.