Zacks Bull and Bear of the Day Highlights: POSCO, Kirkland's, Inc., Family Dollar Stores, Wal-Mart Stores and Dollar General Corporation

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Jan 06, 2011, 09:30 ET

CHICAGO, Jan. 6, 2011 /PRNewswire/ -- Zacks Equity Research highlights: POSCO (NYSE: PKX) as the Bull of the Day and Kirkland's, Inc. (Nasdaq: KIRK) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Family Dollar Stores Inc. (NYSE: FDO), Wal-Mart Stores Inc. (NYSE: WMT) and Dollar General Corporation (NYSE: NDG).

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Full analysis of all these stocks is available at http://at.zacks.com/?id=2678.

Here is a synopsis of all five stocks:

Bull of the Day:

POSCO (NYSE: PKX) remains well positioned to benefit from a wide regional diversification and a higher proportion of value-added products in its product mix over the longer term.

Expectations of higher exports and lower imports of steel in Korea is encouraging for Korean steel companies, apart from fears of rising competition among local players. Moreover, POSCO's joint venture with Krakatau Steel, new processing facility in China and stake acquisition in Australia's iron ore and coal mines will prove to be the prime share-driving catalysts.

Growth may be restricted due to higher raw material prices that led to disappointing third quarter financial results. Overall, however, anticipating positive growth momentum and outperformance compared to the market, we upgrade POSCO to an Outperform recommendation.

Bear of the Day:

Kirkland's, Inc. (Nasdaq: KIRK) again reported weak third-quarter 2011 results with earnings of $0.11, which was below the Zacks Consensus Estimate by a penny. The company's healthy balance sheet supports its investment to bring about a better merchandise mix in its stores.

However, the company's susceptibility to the global economic downturn, coupled with stiff competition, severely undermines the company's future growth prospects and profitability.

Our long-term Underperform recommendation on the stock indicates that it would perform well below the broader market. Our target price of $13.00, 10.4X 2011 EPS, reflects this view.

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Family Dollar Misses, Earnings Up

Family Dollar Stores Inc. (NYSE: FDO) recently posted lower-than-expected first-quarter 2011 results. The quarterly earnings of 58 cents a share missed the Zacks Consensus Estimate of 61 cents, but jumped 18.4% from 49 cents earned in the prior-year quarter due to healthy sales witnessed in the Consumables category.

The Zacks Consensus Estimate had remained stagnant over the last 30 days with only one out of 23 analysts having revised their estimate upwards, which had no material impact on the consensus.

Management now expects second-quarter 2011 earnings between 92 cents and 97 cents, and fiscal 2011 earnings between $3.08 and $3.23. The current Zacks Consensus Estimates for the second quarter and fiscal 2011 are $1.00 and $3.17 per share.

The shares of Family Dollar drop 7.7% or $3.81 to $45.50 in pre-market trading on account of missing the analysts' expectations. Following the lower-than-expected results, we may witness a correction in the Zacks Consensus with analysts adjusting their estimates to better correlate with the company's performance.

We observe that Family Dollar's strategic initiatives to improve merchandising and store operations have helped grow the top and bottom lines.

Behind the Headline

The operator of self-service retail discount store chains posted a 9.5% year-on-year increase in revenue to $1,996.9 million, which came ahead of the Zacks Consensus Estimate of $1,986 million, and reflects sales growth across Consumables categories (up 10.9%), Home Products (up 7.5%), Seasonal and Electronics (up 6.6%), and Apparel and Accessories (up 5.8%).

Family Dollar, which faces stiff competition from Wal-Mart Stores Inc. (NYSE: WMT) and Dollar General Corporation (NYSE: NDG), forecasts fiscal 2011 sales to jump by 8% to 10%. We believe effective price management, cost containment, tighter inventory control, private label offering, expanded operating hours and merchandise initiatives should drive sales trends.

Gross margin contracted 10 basis points to 36%, whereas operating margin increased 10 basis points to 6.1%. Management expects operating margin to increase moderately in fiscal 2011. The drop in gross margin was due to robust sales of lower-margin consumable items and increase in freight expense.

The company's point-of-sale technology and store realignment initiatives better position it to drive traffic, meet customer-oriented demand and improve in-store shopping experience. Consumers with lower disposable income are now prioritizing their purchases and looking for low-priced options. The company trades in merchandise generally priced below $10.

Based in Matthews, North Carolina, Family Dollar hinted that comparable-stores sales are on the rise due to improved traffic counts. Comps jumped to 6.9% in the quarter under review. Management predicts second quarter comps to rise between 5% and 6%, and fiscal 2011 comps to increase by 5% to 7%.

Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.

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Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

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