Raising Price Target on Family Dollar Following Earnings; Reiterate Buy

7/3 - "...same-store sales are currently tracking up about 6%, a sharp acceleration from recent months and the strongest they have been in two years. While tax-rebate spending is a significant factor behind the better trends, we are incrementally confident that an accelerating consumer trade-down dynamic, company initiatives, and a forthcoming increase in the minimum wage will help sustain momentum into 1H09, even as rebate spending tapers off and gas prices remain high. We are raising our forecast and target and continue to view Family Dollar as a good defensive name in a very tough retail environment."

"The stock currently trades 13.3 times our calendar 2008 EPS estimate of $1.65 versus a peer group composite of 14.1 times and at an EV to EBITDA multiple (using 2008 estimates) of 6.7 versus the peer group at 7.1. Over the past three years, the stock’s forward P/E multiple has ranged from a low of about 12 times to a high of over 20 times, so from that standpoint as well, valuation looks reasonable.

Our new 12-month price target of $25, up from an earlier $24, is 15 times our new calendar 2008 EPS estimate of $1.65, up from an earlier $1.60. While we acknowledge that the macro environment has deteriorated further from the time we set our last price target, we are seeing signs of a broadening and accelerating consumer trade-down dynamic and think this “cycle” could last well into 2009. Family Dollar should be a key beneficiary."