Shares of Family Dollar Stores Inc. fell in midday trading Friday after an analyst lowered his rating, price target and earnings estimates for the discount retailer.
THE SPARK: Sterne Agee analyst Charles Grom said in a research note that he lowered his rating on the Matthews, N.C., company's shares to "Underperform" from "Neutral" and his price target to $56 from $62. He also lowered his earnings expectations for both 2014 and 2015.
THE BIG PICTURE: Family Dollar runs more than 8,000 stores in 46 states.
The company said in October it earned $443.6 million, or $3.83 per share, in fiscal 2013, as annual revenue rose 11 percent to $10.39 billion. But it gave a cautious 2014 earnings forecast that was below Wall Street's average expectations.
THE ANALYSIS: Analyst Charles Grom said in a research note that the bull case for Family Dollar shares has been predicated on a takeout led by competitor Dollar General Corp., but he believes the chances of that are remote in the near term.
He said Dollar General appears to be focused more on share buybacks and organic growth instead of acquisitions. With that possibility unlikely, Family Dollar fundamentals will return into focus, he wrote.
SHARE ACTION: Down 3.1 percent, or $2.12, to $65.48 in midday trading while the Standard & Poor's 500 index climbed slightly. The stock has risen more than 6 percent so far this year.
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