Deutsche On Fred's: A Number Of Headwinds With No Near-Term Solutions

Deutsche Bank found multiple headwinds for
Fred's, Inc.FRED
for which there are no near-term solutions. As a result, analysts, led by Paul Trussell, reduced the price target from $12 to $10, while maintaining a Sell rating on the company's shares.

The comments come a day after the company reported mixed quarterly results. While its loss per share was smaller than expected, revenue fell shy of estimates, thus triggering a selloff. Incidentally, management acknowledged multiple headwinds while slashing the forecast.

For instance, the Hepatitis C drug is witnessing a slowdown, as it represented 60–70 percent of the company's specialty business. Other headwinds included pressure on continued reimbursement, tough competitive environment, and DIR fees extending their ambit.

Related Link: 5 Stocks Which Plummeted 3 Days On Increasing Volumes

In a research note to clients, the lead analyst said, "Risks include better SSS trends as FRED works to revamp its marketing, merchandising, and store format and should pharmacy industry headwinds subside, and GPM improvement."

Deutsche Bank pointed out that SSS witnessed 3.0 percent drop in August, which was wider than the 1 percent drop estimated by the firm and the Street. On a two-year stack basis, it represented a fall of 1.8 percent compared to 3.9 percent drop in July. The main culprit in this drag is the slowdown in the Hepatitis C drug. The company faced negative trends in paper, household chemicals, beverage and food, thus indicating the pressure from tough market conditions.

The stock was down 6.06 percent at $11.16 at time of writing.

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Posted In: Analyst ColorEarningsNewsGuidanceShort IdeasPrice TargetReiterationAnalyst RatingsMoversTrading IdeasDeutsche BankPaul Trussell
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