MKM Partners Reiterates Buy Rating on 99 Cents Only Stores (NDN)

MKM Partners is out with a research report this morning, where it reiterates its Buy rating on shares of 99 Cents Only Stores NDN; it also has a $22.00 price target on the stock. The MKM analysts said, “99 Cents Only Stores reported 1Q11 (ended 6/26/10) sales of $346.5 million, up 4% from last year and incorporating a 2.7% same-store sales increase. While our comp estimate was slightly higher, at 3%-4%, we were pleased with the company’s performance, particularly when considering the very difficult 7.2% comparison. We also note that the two-year stacked comp saw slight sequential acceleration, rising to 9.9%, despite the earlier Easter (benefited 4Q10 and hurt 1Q11).” They noted, “Annualized sales per store increased nearly $130,000 in the first quarter, and 99 Cents Only continues to have the highest sales per square foot in the dollar store industry, at roughly $280 on a combined basis (including Texas) vs. others in the $165-$190 range. Comps increased 2.3% at stores outside Texas, while comps grew 7.2% in Texas. On a combined basis, traffic increased 2.3%, and ticket rose 0.4%, to $9.60.” The MKM analysts also believe the stock deserves a higher valuation, adding, “While we continue to use a book value multiple for our 12-month price target, much stronger-than-anticipated earnings growth is making the earnings-based multiples look more reasonable to us, if not attractive. At just over $15, the stock trades about 15x our FY11 EPS estimate of $1.02. For a company with nearly $3.00 per share in cash and marketable securities, a valuable portfolio of owned real estate, no debt, a huge store growth opportunity and the potential for continued margin expansion and strong earnings growth, this is a very attractive valuation, in our view. We are maintaining our 12-month price target of $22, which is 2.5x tangible book value.”