Deutsche Bank Sees Potential In 99c Only Stores Following Management Meeting

99c Only Stores NDN has alluded to testing product above $0.99 in recent calls and it wrote about it after the 3Q11 earnings release. Deutsche Bank came away from its meetings with an increased sense of the potential. Rather than a few items, it now believes that NDN could add as much as a few dozen consumable products at prices above $0.99, likely in the $2.99 range. DB thinks this could have a meaningful impact to calendar 2012 comps. Deutsche Bank remains comfortable with its current estimates, which include flattish comps this quarter and slight acceleration in the June quarter due to the Easter shift. This should enable NDN to achieve DB's EPS estimates, which are slightly better than consensus. Longer term, it sees earnings power at $1.75 on a 10% EBT margin, 8% store growth and 2.5% comps over the next three years. NDN is trading at 13.8x and 12.2x calendar 2011 and 2012 estimates compared to the hardline averages of 14.5x and 12.6x. NDN also has net cash per share of $3. DB's $20 price target is based on 14x its 2012 forecast. Deutsche Bank believes the biggest risks are continued weak comps, competition in grocery product and potential execution issues. DB has a Buy rating on NDN NDN is trading higher at $16.80