Family Dollar's Q3 Ws Disappointing, But MKM Says It's a 'Non-Event'

In a report published Friday, MKM Partners analyst Patrick McKeever maintained a Neutral rating on Family Dollar Stores, Inc. FDO, while raising the fair value estimate from $79 to $79.50. Family Dollar reported disappointing results for 3Q15. The company's comps increased 0.7 percent, as compared to the MKM estimate of 2.0 percent, while the adjusted EPS was $0.74, versus the MKM and street estimate of $0.82. "On a positive note, there was continued sequential improvement in the quarter (ended 5/30/15) against modestly more difficult comparisons, even as management and the store team continued to prep for the pending merger with Dollar Tree (DLTR, Buy, $80.11, $88 PT)," analyst Patrick McKeever mentioned. In the report MKM Partners noted that an improvement in the company's gross margins was more than offset by higher SG&A. The New Store performance was encouraging with total sales of $2.73 billion nearly matching the MKM forecast. The EPS estimates for 4Q15 and FY 2015 have been reduced from $0.80 to $0.68 and from $2.80 to $2.60, respectively. The company's pending merger with Dollar Tree, Inc.. DLTR is expected to close in early July. As per the terms of the deal, Family Dollar's shareholders will get $59.60 per share in cash, 80 percent of the offer, and 0.2484 Dollar Tree shares, 20 percent of the offer, for each of their FDO shares.