Mar 8, 2009
JP Morgan raises Family Dollar Stores to neutral
Mar 8, 2009
March 6 (Reuters) - JP Morgan upgraded Family Dollar Stores Inc (FDO.N) a notch to "neutral" on Friday, a day after the discount retailer posted comparable sales much above analyst estimates, and also raised its price target on the stock by $10 to $29.
The brokerage, which removed the stock from its focus list, said "it is clear to us that being underweight, the stock in this macro backdrop is fighting an uphill battle."
However, analysts led by Charles Grom said they continued to prefer "overweight"-rated Dollar Tree Inc (DLTR.O) and Wal-Mart Stores Inc (WMT.N) for those investors looking for retailers with exposure to the lower-income arena.
Family Dollar is among those who cater to lower-income shoppers, many of whom make less than $30,000 a year and have been hit hard by the year-long U.S. recession.
On Thursday, the company, which sells most of its merchandise for below $10, reported a 6.4 percent rise in second-quarter same-store sales, which was above estimates for a 3.6 percent gain, on strong sales of consumables like laundry detergent or soda.
"As with almost every other retailer in our space, apparel remained soft... but with consumables penetration representing over 66 percent of the mix (and growing), we believe that Family Dollar is well suited to weather the storm," the analyst said.
However, Grom said more consumables in the company's product mix is negatively hurting margins.
Shares of Family Dollar closed at $30.66 Thursday on the New York Stock Exchange.
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