Oversold: Value Based & Real Estate Rich

Fred's, Inc. (FRED): General Merchandise Retail

“Freds, Inc., together with its subsidiaries, engages in the sale of general merchandise through retail discount stores and full service pharmacies in the southeastern United States. It offers pharmaceuticals, household goods, food and tobacco, paper and cleaning supplies, health and beauty aids, apparel and linens, disposable diapers, pet foods, paper products, and various food and beverage products primarily to low, middle, and fixed income families in small- to medium- sized towns. The company also sells general merchandise to franchised Fred's stores. As of January 28, 2012, it operated 679 company-owned discount general merchandise stores, including 41 express stores; and 325 pharmacies, as well as 21 franchised Fred's stores. The company was founded in 1947 and is headquartered in Memphis, Tennessee.

Fred continues to under perform their industry peers, discount merchandise. Fred’s stock returned -.78 versus 22.32% for the industry. P/S, P/B and P/CF are all below their industry valuations. 

Outstanding share count has been significantly reduced from a 2008 balance of 39,771,000 to the most recent count of 36,682,750. Gross margins have steadily climbed from 2008 at 27.53% to the most recent reported balance of 28.94%. Book value per share also steadily moves higher from a 2008 9.23 per share balance to today’s 11.80 per share.The Company owns the real estate and the buildings for 88 locations , distribution center and corporate headquarters situated on approximately 60 acres in Memphis, Tennessee.

Market Cap: 495.37M , Enterprise Value:475.34M
Price/Book: 1.12, Enterprise Value/Revenue: 0.25
Enterprise Value/EBITDA: 5.70, Short % of Float: 11.70%

Stock opened up at 13.28 and closed the day at 13.50


jeff said...

Do the leases worry you?

ShadowStock said...

Hi Jeff

I’m okay with the leases.They have a long history since 1949 of profitability, current small dividend yield of 1.80%. If investors have an interest they may want to wait or average slowly into the stock if it drops. Locations serve low, middle, and fixed income families in small- to medium- sized towns.Those areas are underserved and fixed, low and middle income families are growing.

jeff said...

Fair. One nice thing is that they aren't saddled with the crazy pension woes of SVU...