Buckingham Research Reinstates Coverage on Family Dollar (FDO) with an Underperform

July 23, 2008 1:20 PM EDT

Buckingham Research reinstates coverage on Family Dollar (NYSE: FDO) with an Underperform rating. Price target $19.

Buckingham analyst says, "We are resuming FDO at Underperform. Since our upgrade to Neutral (from Underperform) on June 30, FDO shares have appreciated apx 25%. However, aside from a stimulus check-induced surge in sales, not much has changed at FDO, in our view. Our decision to go back to an Underperform rating on the stock is driven by the following four considerations plus the stock’s current valuation: 1. FDO is a structurally challenged business experiencing a long-term trend of contraction in operating margins. 2. Earnings growth expectations for FY09 are too high. Our estimate is $1.54 compared to the Street at $1.69. 3. We expect comps to decelerate going forward. 4. 3QFY08 upside was the product of a one-time easy compare. Based on our analysis of per square foot S,G&A we do not believe that it will be a source of upside going forward."

Family Dollar Stores, Inc. operates a chain of more than 6,400 general merchandise retail discount stores in 44 states, providing consumers with a selection of merchandise in convenient neighborhood stores.

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