Not All in the Family (Dollar)

As Family Dollar Stores, Inc.

is set to report earnings on Wednesday, September 28, the attention being afforded (pun intended) to the space recently has ramped up. The Charlotte-based company is expected to report earnings of 63 cents per share on $2.12 billion in revenues. This is up from last year, when the dollar store reported earnings of 56 cents per share on $1.96 billion in revenues. Back in May at the

Pershing Square's Bill Ackman announced he had a position in Family Dollar. Ackman said that he believes the company is eventually worth $70 per share, if the company's management is able to catch up to its largest competitor, Dollar General

. Nelson Peltz is also in the name, and actually tried to take the company over back in

, but nothing ever happened. Shares are currently trading at 15 times 2012 earnings and sport a 1.4% dividend yield. Ackman has not moved out of the name, but has been silent, as this is a passive investment for him. With names like Peltz, Ackman and other major investors getting into the space, it stands to reason that most investment banks would be fairly positive on the names. Not everyone feels this way however. Piper Jaffray, and

came out with reports today that were not particularly bullish going into earnings on Wednesday. In the report, Deutsche Bank wrote, "We're not buyers of FDO into its 4Q print for 2 reasons. First, post DG's 5.9% SSS, the bar is higher and if SSS do not exceed this print, the 'following the DG playbook' bull thesis will take a hit. Second, historically FDO set the guidance bar low - up until last year that is - when activism likely led management to posture FY11 more optimistically. With the macro backdrop as uncertain as ever, we'd prefer management adopt its old school habits - setting up the stock for beats/raises (vs. meets/misses - ala FY11)." Deutsche Bank has a Hold rating and a $53 price target on shares. Deutsche Bank actually believes that Ackman and Peltz being in the name has hurt the stock, causing management to abandon their under promise, over deliver mantra. Deutsche Bank talking about the activism in the name being potentially bearish for the company is something to note. Usually, activism leads to the company either setting itself for up a sale (still possible), or increased operational performance. As Family Dollar tries to compete with Dollar General, Dollar Tree

and 99 Cents Only Stores

, it does not seem like the activists would do something to cause the share price to drop, but that is what Deutsche Bank is inferring. Piper Jaffray is actually

In their note, Piper Jaffray wrote, "We are maintaining our UW rating and $49 PT heading into FDO's Q4 earnings release on Wednesday. We expect in line Q4 EPS, and remain more concerned about the outlook and eventual results during the coming F12. We expect ongoing gross margin pressure as a result of supplier cost increases and FDO's push toward low- margin consumables within its mix. Also, we note expectations for out-year earnings growth heading into F12 are much higher compared to the two previous years, and this is coming off a year when FDO operationally missed its full year guidance." Piper Jaffray has an Underweight rating and a $49 price target, about 10% below where shares are currently trading. With names like Ackman, Peltz and Warren Buffett in the space, most investors would think this is a pretty smart investment. Not if you believe these two research reports. It looks like everyone is NOT all in the family.

Traders who believe that Family Dollar will beat and raise might want to consider the following trades:

Traders who believe that Family Dollar will do better than expected may consider alternate positions: