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Deutsche Bank Lays Out 4 Possibilities For Family Dollar

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Family Dollar (NYSE: FDO) and Dollar General (NYSE: DG) are set to be two of the most talked about stocks Monday after Carl Icahn announced a 9.39 percent stake in Family Dollar after the close Friday; shares rose nearly 10 percent. Dollar General shares are up more than nine percent.

In his 13D filing, Icahn said he plans to consider strategic alternatives for the company. Analysts across Wall Street are weighing in on what this means; a merger between Family Dollar and Dollar General seem to be the most widely accepted theory.

Related: Family Dollar Issues Statement Regarding Icahn Schedule 13D Filing

Analyst Paul Trussell lays out four scenarios for Family Dollar in his research note:

  • Family Dollar and Dollar General merge, despite pushback from management teams in the past.
  • Icahn positions Family Dollar to be taken over.
  • Replace the CEO, who is the son of the founder, with fresh leadership.
  • Lastly, Icahn patiently awaits for Family Dollar to continue with its cost-cutting efforts.

Trussell comments on the potential value creation, “We model FY15 EPS for FDO of $3.66… However, if FDO had the productivity of its peer DG (SPSF of ~$205 and EBIT % of 9.4%), earnings power would double to ~$7.60.”

This would put an approximate $74 price target on Family Dollar (sees a $70 price target in the case of a buyout).

Analysts at Jefferies think the probability of a merger are high and upgraded both companies to Buy.

What do you think?

Posted-In: Carl Icahn Deutsche Bank Paul TrussellNews Hedge Funds M&A General

 

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