Why Family Dollar Stores, Inc. Will Keep Pulling Back

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Family Dollar Stores, Inc.  (NYSE: FDO  ) slipped slightly on Thursday after Raymond James downgraded the discount retailer from market perform to underperform.

So what: Along with the downgrade, analyst Dan Wewer planted a valuation range of $49 to $54 on the stock, representing as much as 25% worth of downside to yesterday's close. While value investors might be attracted to Family Dollar's share-price weakness in recent months, Wewer believes there's plenty of room to fall given the company's still-expensive valuation relative to close peers.

Now what: According to Raymond James, Family Dollar's risk/reward trade-off remains pretty unattractive at this point. "Despite reporting disappointing F1Q14 results and issuing sharply lower FY14 guidance on January 9 -- FDO is down only ~1% since," Wewer noted. "In our view, FDO shares should trade at a discount to its competitors given its historically inferior sales productivity and the sizable headwinds it faces over the next several quarters." With Family Dollar shares still up about 20% from their 52-week lows and trading at a near-20 P/E, waiting for a wider margin of safety certainly seems prudent.

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  • Report this Comment On January 16, 2014, at 9:15 PM, DanTheMan1984 wrote:

    True I agree it will pullback but not to those targets in the article. Dont forget FDO raised there dividend today by 19% for the 38th concesuctive year. Dollar General, Dollar Tree and Five Below dont have dividends...something to consider.

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