Fred's, Inc. (NASDAQ: FRED) shares
jumpstarted to $20.19 on Tuesday from Monday's closing value of $11.15. The strong upward move came on the back of an announcement that Fred's would buy 865 stores and
certain assets related to store operations located across the eastern and western United States from Walgreens Boots
Alliance Inc (NASDAQ: WBA) and Rite Aid
Corporation (NYSE: RAD) for $950 million in cash. The
company expects the deal to close in the first half of 2017.
Transitioning To Bona Fide Pharmacy
Following the development, Deutsche Bank said in a note released
on Tuesday that the company has taken a giant leap in its transformation from a dollar store to a bona fide pharmacy. The firm
noted that the company is poised to become a long-term viable competitor in the space with a more national footprint.
Risk/Reward Balanced
While viewing the deal value as favorable, analyst Paul Trussell said the markets have now folded the value into the current
stock price. The analyst views the risk/reward as balanced, as it expects material projected accretion and cash flow as well as the
benefits of greater scale and the TSA versus integration and execution challenges, plus lingering industry issues in both pharmacy
and the front-end.
Remaining On The Sidelines
Deutsche Bank also raised questions regarding procurement and merchandising, bannering over the longer term, the geographic mix
of the new footprint and potential DC needs, capital allocation and whether the new management team can effectively operate 1,500
stores despite struggles with the current base. The firm said it would remain on the sidelines, awaiting clarity on these
issues.
Raising Estimate, Price Target
Factoring in the new store additions at the end of the second quarter, the firm raised its 2017 earnings per share estimate to
$1 from -$0.12. The firm also raised its price target to $23 from $8 following Tuesday's run up. The firm has a Hold rating on
Fred's.
In pre-market trading, shares of Fred's were pulling back 0.99 percent to $20.19.
Image Credit: By Michael Rivera (Own work) [CC BY-SA 3.0], via Wikimedia Commons
Latest Ratings for FRED
Date |
Firm |
Action |
From |
To |
Oct 2016 |
Deutsche Bank |
Upgrades |
Sell |
Hold |
Aug 2016 |
Stephens & Co. |
Downgrades |
Equal-Weight |
Underperform |
Aug 2016 |
Deutsche Bank |
Maintains |
|
Sell |
View More Analyst Ratings for
FRED
View the Latest Analyst Ratings
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