Though the retail sector in general has been suffering as of late, talk about a company buyout at Fred's, Inc. (FRED) has bolstered the outlook on the Buy-rated retailer, in the opinion of Zacks senior retail analyst Rob Plaza, CFA:
'Fred's third quarter earnings were $0.02 per share below the company's guidance, but the real news was that the company announced that it had received multiple inquiries from qualified parties about a possible sale of the company. Management also announced that it hired Merrill Lynch (MER) to review a range of strategic and financial alternatives.
'In other words, Fred's may be a possible takeover candidate. This doesn't surprise us, given its cheap stock price, stable business and solid balance sheet. We maintain our Buy rating on FRED shares. Our target price is $13, or about 15x our fiscal 2008 EPS estimate.
'FRED shares trade at 13.2x our fiscal year 2007 EPS estimate and 11.2x our fiscal 2008 EPS estimate. Fred's P/E ratio is below that of its industry peers and its long-term earnings growth rate. We view this as an attractive valuation and believe the stock should climb at least 30% above its current price.'
Read the full analyst report on FRED.
Get real-time market insights and profitable stock recommendations from the team of analysts at Zacks Equity Research. See all todays Analyst Blog entries on Zacks.com.