Jefferies Upgrades Dollar General (DG) and Family Dollar Stores (FDO) to Buy on Potential Merger Following Icahn 13D
- ADP Employment Change 212K vs 219K Expected
- Abercrombie & Fitch (ANF) Misses Q4 EPS by 2c; Comps Fell 10%; Provides FY15 Outlook
- Pre-Open Stock Movers 3/04: (NVGN) (W) (AEO) Higher; (NSPR) (CYCC) (BOBE) Lower (more...)
- Bob Evans Farms (BOBE) Misses Q3 EPS by 10c; Cuts FY15 EPS Outlook
- Amazon (AMZN) Target Lifted to $425 at Baird Ahead of AWS Breakout
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
- Starboard Says Staples (SPLS)/Office Depot (ODP) Synergies 'Conservative'; Actual Synergies Could Drive Stock to $32-$37
- BofA/Merrill Lynch Downgrades LKQ Corp. (LKQ) to Neutral
- Specialists Positive on Orexigen's (OREX) Contrave Interim Data; Leerink Swann Raises Price Target to $11
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!