Family Dollar Stores (FDO), a discount chain whose colleagues include Dollar Tree (DLTR) and Wal-Mart (WMT), is set to report second-quarter earnings on Wednesday. The question is, should a trader open a position before the numbers?
This is a really difficult one. According to Trey Thoelcke's data summary, analysts are expecting very good things from the retailer. Earnings may rise over 20% to 78 cents per share, while sales could increase just under 5%. Another positive element is the dividend payout: it was raised in January by 14.8%. You've got to take that as a sign of confidence on the part of the management team, right?
Dividend increases don't necessarily mean much to traders, but let's review some history. Back in January, I discussed the first-quarter numbers. The stock was up at one point over 11% on the earnings news.
If Family Dollar beats tomorrow, it's possible we could see another rise in the stock. However, there is risk to this trade. To begin with, shares aren't acting this afternoon like we're going to see great results tomorrow; at the time of this writing, they were flat (down 17 cents). Plus, they aren't far from the 52-week high of $37.89 (which was actually made today, I should point out). And volume isn't too robust. One might argue that the stock is ready for profit-taking.
The company has a good record in terms of the analyst game, as the statistics at Earnings.com make clear. And the stock has been strong. To my way of thinking, the shares look like they may indeed rally tomorrow. I expect a beat on the bottom line, and I think it's interesting to consider the significant short interest in the company as mentioned in this item at TheFly. If short sellers rush to cover, traders could benefit. Whatever you do, perform your own due diligence, and let me repeat that you must understand the risks of any earnings play (they are plenty, believe me).
Disclosure: I don't own any company mentioned; positions can change without notice.