Tuesday, Credit Suisse upgraded Family Dollar Stores Inc. (FDO) shares to Outperform from Neutral with a price target of $34. The brokerage maintained its 2010 EPS estimate of $2.31.
Analyst Exstein noted that while investors are seeking retailers with leverage to a cyclical economic recovery, Family Dollar is a solid long-term investment benefiting from secular positives in the dollar store segment and a compelling valuation.
The analyst said that increased private label penetration and greater direct sourcing represent operating levers in addition to those we discuss in prior notes such as debit/credit/food stamp acceptance and store hour customization. Private label accounts for only 13%-15% of sales at Family Dollar vs. 20% and growing at Dollar General. FDO is in the midst of a significant effort to increase its private label offering.
The analyst added that Government CPI data points to worsening food deflation, but recent comments from both Costco and Target indicate that deflationary pressures are beginning to ease slightly on a year over year basis. The analyst estimates that food/beverages account for about 30% of FDO's overall sales.
Currently, FDO is up $0.64 or 2.24% and trading at $29.23.
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