Jefferies Upgrades Dollar General (DG) and Family Dollar Stores (FDO) to Buy on Potential Merger Following Icahn 13D
- Top 10 News for 12/2: Crude Rips on OPEC Cut; Starbucks' Schultz Steps Down; Nonfarm Payrolls Flat in Nov.
- Unemployment Rate Drops to 4.6%
- Bond yields slip on U.S. jobs data, euro steady before Italy vote
- Alibaba (BABA) Founder Jack Ma Discuss Plans to Retire; 'I Don't Want to Die at the Office'
- Starbucks Coffee (SBUX) CEO Howard Schultz to Step Down, Appointed Executive Chairman; Kevin Johnson New CEO
Jefferies upgraded both Dollar General (NYSE: DG) and Family Dollar Stores Inc. (NYSE: FDO) from Hold to Buy with price targets of $75 and $79, respectively, based on the potential for a deal that results in a combination and large synergies are realized.
"A recent 13D revealed that Icahn Capital LP has accumulated a 9.4% stake in FDO. With multiple activists holding big positions, we could see FDO respond to shareholder pressure by changing management and board members or putting the company up for sale," analyst Daniel Binder notes.
He added, "This upgrade is based on a potential combination of Dollar General and Family Dollar and the enormous synergies we see as a result. We think synergies could be in the range of $950 million- $1.2billion. This would put EPS for DG at about $5.50-6.00 versus our current estimates of $3.51 for this year. Icahn Capital LP filed a 13D on Friday evening indicating it has taken a 9.4% stake in FDO. Icahn Capital has indicated that it intends to discuss with Family Dollar’s senior management and Board, its strategies to enhance shareholder value, including the pursuit of operating initiatives or the exploration of strategic alternatives. It may also seek shareholder board representation if appropriate. If the outcome of shareholder pressure is Family Dollar board and management changes and no deal comes to pass, DG would be less interesting, since we view it as fairly valued as a standalone company at current levels. Our 12-month $75 price target is based on shares selling at about 19x our FY16 (Jan 16) EPS estimate of $3.98 (pre deal) or 10.6x EV/EBITDA. This reflects the prospects of a deal getting done, which includes potential synergies we have built in for first year."
Shares of Family Dollar Stores Inc. closed at $60.53 yesterday.
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- Pandora (P) Advisers Said to Begin Reaching Out to Possible Suitors Following Approach from Sirius (SIRI) - Bloomberg
- Brean Capital Cuts Price Target on G-III Apparel Group (GIII) Following 3Q Miss
- Jefferies Raises Price Target on US Physical Therapy (USPH) to $63 Following 12-Clinic Acquisition
Create E-mail Alert Related Categories13Ds, Analyst Comments, Hot Comments, Hot Upgrades, Mergers and Acquisitions, Rumors, Upgrades
Related EntitiesCarl Icahn, Jefferies & Co, 13D, Definitive Agreement
Sign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!