Over the last few days it seems that Wall Street and the press have been fixated on several things: oil prices and their recent decline, the news about Google's (Nasdaq:GOOG) expected new operating system , and Alcoa's (NYSE:AA) second-quarter earnings, which were released on Wednesday after the closing bell. However, comparatively little attention or ink seems to have been given to Family Dollar (NYSE:FDO), which is unfortunate because this company has a lot going for it.

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The Pros
The first thing that comes to mind is its most recent earnings. This past Wednesday before the bell, the company disseminated its third-quarter numbers, which were very good. In a one, two punch, the company earned 62 cents, three cents north of what analysts had been looking for.

The release also indicated the company expected fourth-quarter earnings of 39 to 43 cents, which is exciting because analysts are looking for just 40 cents.

But even beyond these numbers, I remain bullish on discounters and deep discounters because the economy is still extremely weak and many consumers may be afraid to frequent higher-end stores. In other words, people are frugal and will be frugal with their money for some time and that should play squarely into Family Dollar's and its brethren's hands.

Beating Expectations
It's also important to look at how Family Dollar has performed in comparison to expectations. For the record, it has met or beat expectations in every one of the last four quarters. And that will make it endearing both to analysts and prospective investors.

Finally, take a look at the dividend. The forward yield is about 1.8%. That's not huge, but it is the icing on the cake. The price-to-expected earnings multiple, which is about 13.5, is fair because the company is expected to grow at a more than 12% clip per annum in the next five years.

Of course, Family Dollar isn't the only company with the potential to do well. I'm also bullish on Target (NYSE:TGT) and Wal-Mart (NYSE:WMT) because of their ability to be so competitive on pricing. Same goes for Dollar Tree (Nasdaq:DLTR), the Virginia-based discount chain. Note that this company is trading in the upper-end of its 52-week trading range and I think the shares could hit a new high.

A Concern
One thing that concerns me is that the shares closed up sharply on the July 8, the day the company released its earnings. Don't get me wrong, that's great for existing shareholders. However, because it jumped so sharply, it could give back some of that gain.

The Bottom Line
I am a huge fan of discounters and deep discounters and among my favorite plays is Family Dollar. It is coming off a strong quarter, and has had a good record as far as beating estimates is concerned. And because consumers will be cautious when reaching into their pocketbooks, I think the stock is a good play as well. (For more, see Analyzing Retail Stock.)

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Tickers in this Article: FDO, WMT, TGT, GOOG, AA, DLTR

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