This wasn't very well received by some analysts. Deutsche Bank, however, was willing to reiterate its Buy recommendation in light of the deal. Deutsche Bank analysts Paul Trussell and Matt Siler offer a price target of $60 per share. Trussell and Siler on Tuesday wrote, “With DLTR doubling its top-line and positioning itself for 20% EPS growth the next few years, we're surprised at yesterday's lukewarm stock reaction. Buy.”
Related Link: 4 Stocks To Watch Amid Family Dollar, Dollar Tree Merger
FBR & Co analyst Dutch Fox stated in a note:
“We view the longer-term success of this potential merger as a question of risk and reward, and we are unconvinced that shareholders are being properly rewarded for the risk that the company is taking on by merging with Family Dollar. Family Dollar should not be viewed in a vacuum and should be viewed against the backdrop of maintaining the status quo (steady sales growth and aggressive share repurchases), which could generate an 18.5% EPS CAGR.”
In return for a slightly higher growth rate, the company is taking on unnecessary risk, which is a point that other analysts at different firms agree upon.
Analysts at BMO Capital cut their rating from Outperform to Market Perform and lowered their price target from $69.00 to $59.00.
MKM Partners went on to explain that things at Dollar General (NYSE: DG) aren't too bad:
“While some investors may be disappointed Dollar General isn't buying Family Dollar, given the potential synergies, and may be concerned about Family Dollar emerging as a stronger competitor to DG under Dollar Tree's wing, we don't think the basic industry dynamic has changed that much, and we continue to like Dollar General's prospects.”
Dollar General and Family Dollar are up about one percent, while Dollar Tree is up more than two percent in Wednesday's session.
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