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Reign Of Low Prices Continues

Posted: Apr 10, 2009 05:15 AM by Glenn Curtis

Tickers in this Article: DLTR, WMT, NDN, FDO

The stock market has rebounded nicely and signs point to an economy on the mend, but consumers most likely will keep a tight grasp on their wallets in the short- and intermediate-term. Thus, retailers specializing in lower priced merchandise will perform well and their stocks may have some room to run.

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Charlotte, North Carolina-based Family Dollar (NYSE:FDO), a deep-discount retailer, released its second quarter earnings before the opening bell on April 8.

A Breakdown Of The Quarter
In the period ended February 28, Family Dollar earned 60 cents per share and generated a little more than $1.99 billion in sales. The company's numbers equaled earnings expectations and slightly beat the $1.98 billion sales projection. Coming in a bit north of expectations, particularly in this environment, is a strong positive.

Beyond surpassing expectations, the company grew its earnings per share (EPS) number more than 30% from the comparable period last year. And it grew its revenue line a healthy 8.7% over the same period last year.

In the coming days, however, most investors will be focused on the company's comments about the future. More specifically, Family Dollar released impressive expectations for both the third quarter and full year. For Q3, the company projects EPS between 54 cents and 58 cents, markedly better than the 50 cents per share projection from analysts. For the fiscal year ending in August, the company puts its EPS guidance between $1.90 and $2. Presently, analysts project and EPS of $1.90 for the year. Management confidence is a good sign for investors.

Other Players In The Deep Discount Game
Dollar Tree (Nasdaq:DLTR) trades at about 16 times the current year's estimate of $2.73 per share. Not cheap, the stock is reasonable, given that the company is expected to grow more than 13% per annum in the next five years. In addition, the stock currently trades near its 52-week high, a plus that may lure the momentum crowd to dress up their portfolios with winning stocks. (Buy high and sell higher! Find out if you could surf these risky waters in Riding The Momentum Investing Wave.)

99 Cents Only Stores (NYSE:NDN) is expected to earn 22 cents per share for the year ending March 31, 2009 and 38 cents in 2010. According to Thomson Financial Networks analysts, the retailer is expected to grow 14% per annum in the next five years. In addition, the company experienced a nice flurry of insider buying in February.

Wal-Mart (NYSE:WMT), with its vast merchandise offerings and overall low prices, continue to be a huge lure to consumers. Its board recently bumped up its annual dividend from 95 cents per share to $1.09.

Bottom Line
Companies that sell low price merchandise will fare well in the near- to intermediate-term, which is why Family Dollar is a bullish pick.

By Glenn Curtis

Glenn Curtis started his career in the 1990s as an equity analyst for a regional firm in New Jersey. There, he covered companies in the technology, entertainment, and gaming industries. Curtis has since worked as a financial writer at a series of both web and print publications, including TheStreet.com and Registered Rep Magazine. He has held his series 6,7,24, and 63 securities licenses.

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