Traders Game Next Retailer On Sale as Private Equity Steps Up Buying Spree with Biggest Deal Ever.
Buyout king KKR devoured low-end discount store Dollar General for $6.9 billion today. Seduced by the sector’s steady cash flows and large real-estate holdings private equity has already scooped up main street brands such as Neiman Marcus, Albertsons and Toys “R” Us – dropping $52 billion in the past two years alone. Is the next retail buy-out around the corner or is the fast money leaving the mall?
Jeff Macke says the inside scoop on this story is that private equity paid 30 times earnings which is a bigger multiple than The Street would expect and that changed everything. (It put a spotlight on bargain retailers and had many investors wondering if they were all undervalued.) Any stock that appeared to be a retail discounter bounced because that was the theme of this buyout.
Jeff says the trade is Big Lots (BIG) – a company that exploded on Friday. He says the earnings multiple is in check and the stock has performed well. But other than that, don’t rush into the space.
Tim Strazzini says there’s a period of uncertainty here relating to how the low-end consumer is going to do in this economy. Will they feel a crush from the mortgage meltdown? Tim says they will still buy gas but maybe not goods from low end retailers. It could be risky to go out a buy an under-performing retailer, hoping one of them gets taken over.
Eric Bolling says the trade is gasoline retailers because the refiners “print money”. Bolling likes Valero (VLO), because they’re not only a refiner, they’re a retailer.
Dylan reminds that a month ago Eric liked Alon USA Energy (ALJ) and wants to know what happened?
Eric responds that they were also a supermarket retailer and they were too heavy into the Twinkies.
Dylan Ratigan says the bottom line is Big Lots works either way and so does Valero.
On MAR 12, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders. Bolling Owns (BP), (DIS), Gold, Silver, Soybeans I s Short Corn; Macke Owns (JWN) Strazzini Owns (EWG), (STM), (SNDK), (VZ), (WMT), (HAL), (MER), (YHOO),(T)