Family Dollar Stores hasn't been making dollars for investors of late. The stock (symbol FDO) trades at about $25 -- down from $35 early last year. But Mark Giambrone, co-manager of Vanguard Selected Value fund, sees better times ahead.
A chain of 5,900 modestly sized retail stores, Family Dollar provides what Giambrone terms "mini-Wal-Marts" to residents of mainly lower- and lower-middle-class neighborhoods.
But those customers are spending less, which has pummeled Family Dollar's earnings and profit margins. "Their customers have been hurt the most by higher energy prices," Giambrone says. The company netted $1.31 per share in the fiscal year that ended last August -- down 22 cents from the previous year. Gross and net profit margins also declined. "Same-store sales growth slowed dramatically," Giambrone says, referring to stores open at least one year. That's largely because Family Dollar earns less on necessities than it does on non-necessities such as toys and T-shirts.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Why be upbeat? The basic business is sound, Giambrone says, and either energy prices will drop or consumers will become accustomed to higher prices. "It takes people time to adjust, but they generally do adjust -- and spend more again," he says.
On average, analysts surveyed by Thomson First Call estimate that Family Dollar will earn $1.35 per share in the fiscal year ending this August. But if Giambrone is right, the company could easily beat estimates. Using the $1.35 number, the stock trades at 18 times earnings. That's lower than the price-earnings ratio has been in nearly ten years. In short, says Giambrone, Family Dollar is a bargain.
--Steven Goldberg
-
Is 100 the New 70?Eating well, exercising, getting plenty of sleep and managing chronic stress can help make you a SuperAger. Funding that long life requires longevity literacy.
-
Nine Lessons to Be Learned From the Hilton Family Trust ContestDisclaimers, good communication, post-marital agreements and more could help avoid conflict in a family after the owners of a wealthy estate pass away.
-
Stock Market Today: S&P 500, Nasdaq Extend Losing StreaksThe two indexes have closed lower for five straight sessions.
-
Stock Market Today: Dow Slips After Travelers' Earnings MissThe property and casualty insurer posted a bottom-line miss as catastrophe losses spiked.
-
Stock Market Today: Stocks Stabilize After Powell's Rate-Cut WarningThe main indexes temporarily tumbled after Fed Chair Powell said interest rates could stay higher for longer.
-
Stock Market Today: Stocks Reverse Lower as Treasury Yields SpikeA good-news-is-bad-news retail sales report lowered rate-cut expectations and caused government bond yields to surge.
-
Stock Market Today: Nasdaq Leads as Magnificent 7 Stocks RiseStrength in several mega-cap tech and communication services stocks kept the main indexes higher Thursday.
-
Stock Market Today: Stocks Tumble After a Hot Inflation PrintEquities retreated after inflation data called the Fed's rate-cut plans into question.
-
Stock Market Today: Stocks End Mixed Ahead of Key Inflation ReadingEquities struggled before tomorrow's big Consumer Price Index report.
-
Stock Market Today: Stocks Closed Mixed in Choppy TradingVolatility returned as market participants adjusted their expectations for rate cuts.
