Family Dollar Stores Anticipates Positive Earnings

By Andrew Keene  OCT 02, 2012 2:00 PM

Family Dollar Stores has seen net income rise for three straight quarters.

 


MINYANVILLE ORIGINAL Family Dollar Stores Inc. (NYSE:FDO) is one of the fastest growing discount store chains in the United States. During the last ten years, more than 4,000 new stores have been added to the 7,000 stores in 44 states. Merchandise, mostly under $10, includes consumables, home products, apparel, seasonal goods, and electronics.

Family Dollar Stores started the day at $66.58 and is up $0.74 in early morning trading. The stock has been trading in a 52-week range of $49.17-$74.73. The stock is up 14.46% YTD and 29.77% over the past 12 months. The stock is in a bit of a downturn right now, falling around 3.5% since July.

Family Dollar Stores will report Q4 earnings Wednesday before market open. The company has beat or met estimates four out of the last five reports. Analysts expect Family Dollar Stores to report a profit of $0.75 per share, which is 13.6% above Q4 earnings from last year. Revenue is also expected to be higher than last year. Family Dollar Stores has also seen net income rise for three straight quarters. Ten of the twenty analysts currently covering the company have a hold rating on the stock.

Moves in the options market are implying that investors are banking on around a 6% move on earnings for Family Dollar Stores. The company has sold off three of the last four earnings reports with an average move of 3%. In the past four quarters, the stock has moved as much as 7.5%  and as little as 0.2% after earnings.  

My trade: Oct. 67.50 - 70.00 - 72.50 Call Fly for $0.30

My risk: $30 per 1 lot

My reward: $220 per 1 lot

Breakeven: $67.80 and $72.20

Why I like this trade: The stock is expected to move 6% or about $4 by expiration. Historical movement on earnings is around 3%-4% in the last four quarters, and I am bullish on the stock.

No positions in stocks mentioned.