UPDATE: Raymond James Downgrades Family Dollar Stores

In a report published Thursday, Raymond James analyst Dan Wewer downgraded Family Dollar Stores FDO to Underperform from Market perform. According to the report, the downgrade reflects a coupling of a deteriorating outlook for same-store sales growth and profitability over the next 3-4 quarters – accompanied by the rich valuation of shares. “Despite reporting disappointing F1Q14 results and issuing sharply lower FY14 guidance on January 9 - FDO is down only ~1% since,” the report noted. “Valuation on our CY13 estimates now stands at 18.4x P/E, 9.0x EV/EBITDA and 2.9% LTM FCF yield – relatively in line with DG and DLTR. On a historical basis, FDO is at a consensus NTM P/E of 18.4x or a 21% premium to its five-year average of 15.2x, the highest among peers. 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. Generously awarding shares their historic P/E on management's FY14 EPS guidance of $3.25-3.55 (Raymond James at $3.58) we arrive at a fair value range between $49 and $54, which implies as much as 25% downside from current levels.” Some highlights from the report included: -Losing market share -Near-term pain likely in transition to EDLP -Management departures accelerate -EBIT% falling from highs FDO closed Wednesday at $64.78.