Family Dollar: A Bargain Stock for a Bargain Retailer

Includes: CLMT, FDO, UHS, UPI
by: Jim Van Meerten

I'm from Charlotte and the South likes its hometown chain, Family Dollar Stores (NYSE:FDO). We know a bargain when we see one, and management does too. The Levine family's interests still control more than 8% of the stock so they had the company buy back 4 million shares in February and have authorized the company to buy back an additional $ 295 million more. The earnings increased 35% year over year so that's better than paying themselves a taxable dividend. Shoppers are still in a recession mindset, so they are still flocking to discount retailers.

Family Dollar Stores, Inc. is one of the fastest growing discount store chains in the United States. The merchandising concept responsible for this growth provides consumers with good values in low cost, basic merchandise for family and home needs. The merchandise is sold at everyday low prices in a no frills, low overhead, self-service environment. Most merchandise is priced under $10.00. Stores generally range in size from 6,000 to 8,000 square feet and most are operated under leases.

Wall Street has found this stock attractive and have 10 buy, 12 hold and 2 under perform recommendations published. The two under performs are old and should be ignored. Analysts predict sales to increase 6.20% this year and 6.10% next year. They project double digit earnings growth of 25.10% this year, 13.90% next year and 13.58% compounded for the next 5 years.

Investor sentiment measured over on Motley Fool is high with CAPS members voting 464 to 45 that the stock will beat the market. The more experienced All Stars agree 146 to 8.

On a technical basis, Barchart has 12 of its 13 technical indicators signaling a buy for a 96% buy score. The stock has appreciated 6.64% in the last month and hit 8 new highs in the last 20 trading session including 3 in the last 5. The stock trades around 40.78 with a 50-day moving average of 38.15.

My points of interest:

  • Shoppers are still price sensitive and FDO is a discount retailer.
  • Barchart signals a 96% buy score with 8 new highs in the last 20 trading sessions.
  • Analysts have buy recommendations with sales and earnings expected to increase.
  • Investor sentiment is high.
Disclosure: No positions at the time of publication