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UPDATE: Raymond James Downgrades Family Dollar Stores

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In a report published Thursday, Raymond James analyst Dan Wewer downgraded Family Dollar Stores (NYSE: FDO) to Underperform from Market perform.

According to the report, the downgrade reflects a coupling of a deteriorating outlook for same-store sales growth and profitability over the next 3-4 quarters – accompanied by the rich valuation of shares.

“Despite reporting disappointing F1Q14 results and issuing sharply lower FY14 guidance on January 9 - FDO is down only ~1% since,” the report noted. “Valuation on our CY13 estimates now stands at 18.4x P/E, 9.0x EV/EBITDA and 2.9% LTM FCF yield – relatively in line with DG and DLTR. On a historical basis, FDO is at a consensus NTM P/E of 18.4x or a 21% premium to its five-year average of 15.2x, the highest among peers. In our view, FDO shares should trade at a discount to its competitors given its historically inferior sales productivity and the sizable headwinds it faces over the next several quarters. Generously awarding shares their historic P/E on management's FY14 EPS guidance of $3.25-3.55 (Raymond James at $3.58) we arrive at a fair value range between $49 and $54, which implies as much as 25% downside from current levels.”

Some highlights from the report included:

-Losing market share -Near-term pain likely in transition to EDLP -Management departures accelerate -EBIT% falling from highs

FDO closed Wednesday at $64.78.

Latest Ratings for FDO

DateFirmActionFromTo
Apr 2015MaintainsHold
Jan 2015MaintainsEqual-Weight
Jan 2015DowngradesBuyHold

View More Analyst Ratings for FDO
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Posted-In: Dan Wewer Raymond JamesAnalyst Color Downgrades Analyst Ratings

 

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