24/7 Wall St. has been calling for higher and higher prices in the dollar store sector and we have discussed consolidation in the other discount store and close-out stores.  Dollar stores will be a secular winner over the years ahead unless we get a sudden return to a booming economy.  We have even gone as far as to showing that dollar store chains are now where Wal-Mart Stores Inc. (NYSE: WMT) was back in the early 1990s.  Private equity and other savvy investors like Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A) have been active in this space. 

Dollar General Corporation (NYSE: DG) remains a Stock to Own for the Next Decade, but we are growing to accept the math here: shares hit a new all-time high of $39.22 today and the consensus price target is only $39.94.  We have chatted this one up over and over since the stock was well into the $20 stock handles.  Kohlberg Kravis Roberts & Co. (NYSE: KKR) continues to sell stock that it still owns and we would just expect that the firm will continue to sell shares.  It is when those price drops occur that you get your chance to enter the stock on the cheap.  Please be advised, we expect that Warren Buffett will have added to this position.

There has also been buyout interest in Family Dollar Stores Inc. (NYSE: FDO), up only marginally at $54.05 versus a 52-week range of $41.31 to $56.92.  Dollar Tree, Inc. (NASDAQ: DLTR) has also been under private equity interest and its shares are up 2% at $80.92 and its stock hit a new high of $80.99 this morning.  Analysts have consensus price targets of $56.87 for Family Dollar and $77.67 for Dollar Tree.

Big Lots Inc. (NYSE: BIG) is a close-out store with many low-priced items but is no dollar store.  There was a while where it was also considered takeover bait but that failed to materialize.  At $34.33, the 52-week range is $27.82 to $44.44.  Tuesday Morning Corp. (NASDAQ: TUES) is another close-out store and it is often overlooked because it has a mere $158 million market capitalization rate.  At $3.71 after a 2.6% drop today, its 52-week range is $3.22 to $5.93.

99 Cents only is up 4.2% at $21.36 this morning. The news and the reaction may seem anti-climactic, but this brings an end to what was a long and arduous buyout process that has been going on since at least March of this year.

The growth of discounters and the growth of dollar stores says something awful about America.  If these trends continue, it simply means we have more and more of the population at the lower-end of the spectrum seeking deals wherever they can be found.  Still, business is business.  If Warren Buffett and private equity giants have so much interest in this sector, ask yourself if there is money to be made. Again: Dollar Stores Are The Next Wal-Mart!

The sad thing is that there is now a market premium in the sector.  Our favorite remains Dollar General, but it now trades at 15-times 2012 (actually January 2013) fiscal earnings estimates from Thomson Reuters.  Another premium is there for Dollar Tree with a forward 2012 ratio of 17.5-times expected earnings.  Family Dollar has a different fiscal year-end (august) but if we blend the estimates we get a stock trading at close to 14-times the same earnings estimate periods of the peers.   

We will start to grow a bit more cautious on the sector of dollar stores if the price appreciates too much more.  The fact that we and others are excited about the dollar store and close-out store sector does not bode for much growth and does not bode well for the middle class.  These stocks now trade at richer multiples than many normal retailers: Macy’s Inc. (NYSE: M) trades at 9-times expected 2012 (January 2013) earnings estimates and Target Corporation (NYSE: TGT) trades at 12-times the same period’s estimates.  Wal-Mart Stores Inc. (NYSE: WMT) trades closer to 11-times next year’s expected earnings and that is after the stock enjoyed a significant pop of late.

For a comparison, 99 Cents Only at $22.00 per share values the company at about 17.5-times what was the expected 2012 (March 2013) fiscal earnings expectations.  This still leaves some room higher for dollar stores, but this is a premium to peers and to the broad market.  The secular trend is what is driving the value of dollar stores and investors are willing to pay a premium for that.  The questions will start to arise if these premiums grow much further.  How much of a premium can a discount sector command?

JON C. OGG

Dollar stores are yet again in the news on reports from the New York Post that 99 Cents Only Stores (NYSE: NDN) is soon to get a $22.00 to $24.00 buyout offer from the private equity outfit Apollo Global Management, LLC (NYSE: APO) to top a prior buyout offer from Leonard Green & Partners at about $19.09 earlier in the year.  This may be the rumor mill at work, but there are reasons that this is the case.  The trick here is that the founding family controls about one-third of 99 Cents Only and our understanding is that a new deal might be complicated but would still probably boil down to the highest price within reason.

Dollar General Corporation (NYSE: DG) is a Stock to Own for the Next Decade!  It just saw a secondary offering where Kohlberg Kravis Roberts & Co. (NYSE: KKR) and private equity affiliates sold stock.  This has risen significantly since its re-IPO and each pullback has only proven to be a bargain-bin buying opportunity.  To prove a point, the stock hit a 52-week and all-time high of $38.33 on Friday and Warren Buffett’s new portfolio manager bought shares for Berkshire Hathaway Inc. (NYSE: BRK-A).

There has also been buyout interest in Family Dollar Stores Inc. (NYSE: FDO) and Dollar Tree, Inc. (NASDAQ: DLTR).  Family Dollar shares are up 4.5% at $54.38 and Dollar Tree is up only 0.3% at $75.46.

Big Lots Inc. (NYSE: BIG) is no dollar store, but it is very close and it has much of the same customer base.  It has also been under some perceived buyout interest as well.  Its shares are up almost 3% at $34.22 today against a 52-week range of $27.82 to $44.44.

Another close-out store is Tuesday Morning Corp. (NASDAQ: TUES) and it is often overlooked because it has a mere $172 million market capitalization rate.  At $4.03, its 52-week range is $3.38 to $5.93.

99 Cents only is trading up almost 10% at $20.50 today and it hit a new year high of $20.90 earlier.  Before 2005, this one was worth $30 and $35 at the peak and it pays no dividend.

Again, you do not have to like what the growth of discounters and the growth of dollar stores says about America.  Frankly, it is not very pleasant and it fits in with the theme of lower median income and higher poverty.  If Warren Buffett and private equity giants have so much interest in this sector, ask yourself if there is money to be made.

The TJX Companies, Inc. (NYSE TJX) may be too large now for private equity buyers to focus on with its $21.5 billion market valuation.  At $56.65, its stock is pennies away from the year high of $56.78 and that Barron’s $60+ target is looking much closer now.

Family Dollar is the only real dividend in the dollar sector with a 1.4% dividend yield.  TJX Companies is roughly the same dividend yield.  Wal-Mart offers the highest yield of most retailers, but again: Dollar Stores Are The Next Wal-Mart!

Here is the funny thing… Dollar stores are no longer cheap against the stock market.  They are expensive for the simplest of explanations: this is a secular trend and the growth rate looks to be continuous for this segment.

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JON C. OGG

There is a reason that there has been buyout interest in the sector as Family Dollar Stores Inc. (NYSE: FDO), Dollar Tree, Inc. (NASDAQ: DLTR), and 99 Cents Only Stores (NYSE: NDN) have all either been approached or have been believed to be possible private equity targets.  Ditto for the discounter that is no dollar store of Big Lots Inc. (NYSE: BIG).

Dollar General remains one of our Top Stocks To Own for the Next Decade despite its price rise.  We have said, each time the private equity backers sell it just gives you a free discount to buy shares.  Is it just a coincidence that Dollar General was recently added as a new Warren Buffett stock as Berkshire Hathaway Inc. (NYSE: BRK-B)?  Team Buffett has almost 1.5 million shares of common stock now.  Berkshire will likely buy more stock, and we would not be shocked at all if the conglomerate bought shares in this 25 million share offering.  Buffett and his portfolio managers understand the secular trends here that are working for the dollar stores.

Kohlberg Kravis Roberts & Co. (NYSE: KKR) still has control over Dollar General even after today’s offering.  This will not be the last secondary offering from them.  If you look at the history of these secondary stock offerings from KKR each dip has been simply another opportunity to get into Dollar General shares cheaper than before.

Citigroup, Goldman Sachs, and KKR, along with BofA Merrill Lynch and J.P. Morgan, were the joint book running managers; co-managers are Barclays Capital, Wells Fargo, Sanford C. Bernstein, CICC, Deutsche Bank, and HSBC.

As the float has grown larger and larger, each successive secondary offering is less and less dilutive to the float.  That is why shares are down only 1.3% at $34.54 today and why the share sale commanded only about a 1% discount.  The consensus price target from Thomson Reuters is $39.60, and the 52-week trading range is $26.65 to $37.13.

JON C. OGG

Dollar General raised the lower-end of its guidance as well and sees the year coming in at $2.22 to $2.30 EPS versus a prior range of $2.20 to $2.30 EPS.  The company also sees 12% to 14% sales growth this year, up 1% on each side from prior targets.  Same-store sales are also now expected at 4% to 6%, 1% higher on each side than a prior forecast.

The news is good news for “dollar and low-priced stores” rivals like Family Dollar Stores Inc. (NYSE: FDO), Dollar Tree, Inc. (NASDAQ: DLTR), and 99 Cents Only Stores (NYSE: NDN).  It is no wonder that M&A interest is in the sector.  Last week we saw some of the same from Big Lots Inc. (NYSE: BIG) for its close-out sales that are discounted but not always anywhere near $1.00.

The reality is that this all spreads more bad news for the likes of Wal-Mart Stores Inc. (NYSE: WMT).  In many ways, dollar store chains are the “The New Wal-Mart” if you go back to the early 1990s.

Dollar General is one of our Top Stocks To Own for the Next Decade.  It is also a recently added Warren Buffett stock as Berkshire Hathaway Inc. (NYSE: BRK-B) has almost 1.5 million shares of common stock now.  That Buffett stake is likely to increase as Buffett and his portfolio managers understand the secular trends here.

Kohlberg Kravis Roberts & Co. (NYSE: KKR) still has control over Dollar General.  The one caveat we have always had with this one is that insiders tend to unload blocks of shares when there is a price spike.  We would not be surprised if that happens again, and that dip is most likely just another opportunity to get in cheaper.

Earlier in the pre-market we had shares up at $35.50, which would have been a new 52-week high.  With an hour until the open, the stock is up almost 3% at $34.80 and the 52-week trading range is $26.64 to $35.09.

Challenging 52-week highs even with a huge share overhang is more than impressive enough.  Dollar General is a winner of “the trade-down economy” and this does not seem to be just a fad.  This seems to be a secular trend, and the company manages to keep reaching up for more and more business as well.

JON C. OGG

Big Lots reported adjusted EPS of $0.52, beating the consensus estimate of $0.44, and revenue of $1.17 billion, barely above an estimate of $1.16 billion. The company also raised its full-year EPS guidance to $2.80-$2.90, the top of which is in-line with a consensus estimate of $2.89. The company’s shares have gained about 7% in the past 12 months.

Several of its competitors, and near-competitors, have posted similar 12-month gains. 99 Cents Only Stores (NYSE: NDN) and Tuesday Morning Corp. (NASDAQ: TUES) fall into the same range. Dollar General Corp. (NYSE: DG) shares have risen about 15%, and Dollar Tree, Inc. (NASDAQ: DLTR) shares have jumped 50%.

Since the beginning of the year though, Tuesday Morning shares are down nearly -30% and Dollar Tree’s gains have grown by less than half as much. The biggest portion of these stores’ 12-months gains came during the 2010 holiday season.

A March buyout offer for 99 Cents Only from Leonard Green & Partners gave the company’s shares a boost in March, and there is a rumored counter-offer coming from Apollo Global Management. Tuesday Morning announced a $5 million share buyback program a couple of days ago to give its share price a needed boost. Seasonal impacts are also having an effect.

As the back-to-school season nears its end, the stores have jumped back from a dive at the beginning of the month related to the downgrade of US debt. Solid back-to-school sales could put these stores in a position to reap even larger benefits for the coming holiday season.

Face it, the US economy is not going to get any stronger between now and the end of the year. The deep discounters aren’t going to lose any customers to pricier competitors like Wal-Mart Stores Inc. (NYSE: WMT) or Target Corp. (NYSE: TGT). If anything, the dollar stores will gain customers.

Big Lots shares are down about -0.25% in the early afternoon, at $32.29, in a 52-week range of $27.82-$44.44. 99 Cents Only shares are down nearly -1%, at $18.25, in a 52-week range of $14.32-$20.75. Tuesday Morning’s shares are off more than -2.5%, at $3.72, in a 52-week range of $3.38-$5.93. The SPDR S&P Retail ETF (NYSE: XRT) is down more than -2%, at $46.10, in a 52-week range of $35.79-$56.44.

Paul Ausick

The discount calls for “75 Cents Only when you don’t have a fourth quarter.”

Nice.

Apparently 99 Cents Only does not have stores in Ohio.  This ad might have done better there, and people in Ohio could probably use the discount more than customers in Texas.

The ad did not disclose whether or not it would be honored for wine, pacifiers, or diapers.

JON C. OGG

This morning’s earnings from the king of dollar stores came in at $0.48 EPS as revenues rose 11% to $3.45 billion versus $0.50 EPS and $3.42 billion estimates from Thomson Reuters. Dollar General also reaffirmed guidance for its 2012 fiscal year of $2.20 to $2.30 EPS on revenue of roughly $14.5 billion to $14.7 billion.  The annual targets from Thomson Reuters are $2.26 EPS and $14.51 billion in sales.

Gross profits fell 63 basis points to 31.5% of sales, in part on rising commodity costs.  The company also noted that higher markdowns from winter merchandise and a sales mix shift to more consumable products helped to generate slightly lower gross margins.  Higher transportation costs were also cited, as was a slight inventory build.  Our take is that all of this should have been known and factored in by analysts, particularly as the company has continued adding stores.

What stands out is that Dollar General’s same-store sales grew by 5.4%.  The company noted that it kept prices lower to serve customers, but our take is that Dollar General will gradually raise prices.  Remember, the term “dollar store” now means very low prices rather than charging $1.00 for all merchandise.  The dollar store segment is today where Wal-Mart Stores Inc. (NYSE: WMT) was in the early 1990′s.  While we experienced the “reach-down” economy, dollar stores are also “reaching-up” to grab sales away from full-price retailers.  You cannot just go in a dollar store any longer and hassle the cashier by asking over and over how much each items costs since the answer is no longer $1.00.

One of the issues we see with Dollar General is that this drop might have come even if good news hit the tape.  Dollar General still has a large private equity overhang as both Kohlberg Kravis Roberts & Co. (NYSE: KKR) and Goldman Sachs Group Inc. (NYSE: GS) still hold millions of shares that will likely be sold off in the coming years.  At $35.00 our value flag alerts started to go off, not as massively overvalued but as getting closer to full value.  After all, Tuesday was the only day above $35.00 and the stock was under $30.00 as recently as mid-March.  Thomson Reuters even has a consensus price target of roughly $36.50.

Dollar General is more attractive now that shares are down.  That was our thesis when we called it a Stock for the Next Decade… Buy when the companies go on sale.  At $2.26 EPS expected this year, it trades at 14.3-times expected earnings.  That was 15.5-times expected earnings just yesterday.  Analysts have been surprised many times by how well the dollar stores have done and it keeps happening that analysts expect too much.  We still think that this will be a $40.00 by the end of 2012.  We have not even seen word of a dividend as of yet, something we expect to change in the coming year.

Dollar General Corporation (NYSE: DG) is down 7.5% at $32.43 right after 2:00 PM EST on more than 5.6 million shares.  The 52-week range is $26.61 to $35.09 and average volume is roughly 1.4 million shares.

Wal-Mart Stores Inc. (NYSE: WMT) is down 1.4% at $54.45, Family Dollar Stores Inc. (NYSE: FDO) is down 1.7% at $54.79, Dollar Tree, Inc. (NASDAQ: DLTR) is down 1.6% at $62.72, and 99 Cents Only Stores (NYSE: NDN) is down $0.01 at $20.65.

Any time you see a large pullback, you never want to jump all in at once.  Big drops are usually followed by additional drops.  Be patient, but remember that the stars are still properly aligned for the dollar store segment.  Sometimes a gift is a gift, particularly if you are a value investor.  Stay tuned.

JON C. OGG

99 Cents Only Stores (NYSE: NDN) reports earnings on Wednesday and Thomson Reuters has estimates of $0.26 EPS and $372.76 million revenues; next quarter estimates are $0.27 EPS and $362.19 million revenues.  Shares are trading around $20.20, its consensus analyst price target is $20.28, and the 52-week trading range is $13.12 to $20.59.  As far as an offer for the company, FBR noted in a letter to its Special Committee: “we believe that the Special Committee could not justify accepting an offer below a $21.75 to $23.50 price range, and could potentially achieve a price significantly above this range if it conducts the appropriate sales process.”

American International Group, Inc. (NYSE: AIG) is set to have its 300 million share offering from Uncle Sam price Tuesday night for Wednesday trading.  Shares were down around 1.3% at $29.60 late on Tuesday.  We have offered an outlook that is not unfavorable after looking at past big offerings of this sort.  There are actually some good examples to use.

Citrix Systems, Inc. (NASDAQ: CTXS) hosts its “Financial Analyst Track” on Wednesday at the Synergy 2011 conference, and it also hosts its Citrix Systems Annual Stockholder Meeting the following day.  With shares around $82.00, its 52-week range is $40.33 to $86.95.  The company already said it was extending its virtualization efforts by acquiring Kaviza, so we’d expect to hear more there.  With shares so close to 52-week highs and at highs not seen since 2000 to 2001, we’d be expecting “reiterated guidance” or “raised guidance” from the company as a warning would not be welcomed at all.
 
Computer Sciences Corporation (NYSE: CSC) reports earnings on Wednesday and Thomson Reuters has estimates of $1.16 EPS and $4.23 billion revenues; next quarter estimates are $0.97 EPS and $4.02 billion revenues.  Shares are trading around $43.83 late on Tuesday, its consensus price target is $49.95 from analysts, and the 52-week trading range is $39.61 to $56.61.  CSC is one which has just remained a serial disappointment and shares are closer to 52-week lows even if this is trading well under 10-times expected earnings. 

Costco Wholesale Corporation (NASDAQ: COST) reports earnings on Wednesday morning. Thomson Reuters has estimates of $0.77 EPS and $20.07 billion revenues; next quarter estimates are $1.10 EPS and $26.93 billion revenues.  Shares are trading around $81.50 and it just hit the new 52-week high last week.  Analysts have an average price target only $78.95 now and the 52-week trading range is $53.41 to $83.95.  With a premium valuation, our take is that Costco has to beat earnings and it can’t use the high gas prices or the change in gas prices that some of the large discounters and retailers have used as excuses before.

Hormel Foods Corporation (NYSE: HRL) reports on Wednesday morning and Thomson Reuters has estimates of $0.40 EPS and $1.82 billion revenues; next quarter estimates are $0.35 EPS and $1.81 billion revenues.  Shares are trading around $30.05 and the 52-week trading range is $19.46 to $30.35.  Analyst price targets have already been passed up as the consensus target is $27.45.  Premium value for a food company… It probably has to raise guidance or analysts will have to really raise targets for the selling to not come into play.

NetApp Inc. (NASDAQ: NTAP) reports on Wednesday afternoon. Thomson Reuters has estimates of $0.53 EPS and $1.39 billion revenues; next quarter estimates are $0.50 EPS and $1.36 billion revenues.  Shares are trading around $51.80, the consensus price target is $61.85, and the 52-week trading range is $31.07 to $61.02.  Be advised, the 50-day moving average is $50.04 and the 200-day moving average is $51.12.

Orbotech Ltd. (NASDAQ: ORBK) is expected to have a secondary offering of 6.7 million shares that will price on Tuesday evening for Wednesday trading.  Shares were up 2.6% at $13.03 latein the day on Tuesday after three straight days of losses.  The 52-week range is $9.15 to $15.62 and shares closed Monday at $12.70.  We would expect the offering to price somewhere close to $12.70.

Toll Brothers Inc. (NYSE: TOL) reports on Wednesday morning. Thomson Reuters has estimates of -$0.04 EPS and $319.6 million revenues; next quarter estimates are $0.04 EPS and $402.37 million revenues.  Shares are trading around $20.25, the average analyst target is $22.71, and the 52-week trading range is $15.57 to $22.42. With the housing data we have seen, we are holding no great expectations here. More homebuilder business model changes or enhancements may be the norm. 

Yahoo! Inc. (NASDAQ: YHOO) hosts its investor day on Wednesday and we just automatically expect angry tones over the latest shenanigans took place over Alibaba.  Yahoo! shares were at $18.65 just over two-weeks ago, and now the stock is down to $16.18.  Yahoo! has its 200-day moving average right below at $16.03 and its 50-day moving average is above at $16.86.

Other companies with earnings news on Wednesday will be (with Thomson Reuters estimates) are American Eagle Outfitters Inc. (NYSE: AEO) with estimates at $0.15 EPS, Guess Inc. (NYSE: GES) with estimates at $0.44 EPS, and Polo Ralph Lauren Corporation (NYSE: RL) at $0.79 EPS expected.  Another event we are expecting is the Spirit Airlines IPO, but that IPO was covered only briefly by us prior to this week.  Active Network Inc. (NASDAQ: ACTV) is set to be public with an IPO of 11 million shares in a price range of $16.00 to $18.00 per share.

Stay tuned for Wednesday!

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JON C. OGG

We have compiled detailed earnings reports, showing price activity, Thomson Reuters estimates, and added color if applicable on each.  We also included a Thomson Reuters consensus price target on each to show expected values.

Qihoo 360 Technology Company Limited (NYSE: QIHU) reports on Monday. Thomson Reuters has estimates of $0.04 EPS and $20.31 million revenues; next quarter estimates are $0.05 EPS and $24.12 million revenues.  Shares are trading around $29.50 and the 52-week trading range is $24.01 to $36.21.  This could influence how some of the post-IPO high-flying Chinese companies trade, but we’ll see.  The consensus price target is $35.00.

Tech Data Corporation (NASDAQ: TECD) reports on Monday. Thomson Reuters has estimates of $1.05 EPS and $6.4 billion revenues; next quarter estimates are $1.01 EPS and $6.23 billion revenues.  Shares are trading around $53.40 and the 52-week trading range is $34.82 to $54.25 and its average price target is $55.93.  Tech Data offers key insight into the number of unit items being shipped around the world and distributed in technology products and consumer electronics.

Applied Materials Inc. (NASDAQ: AMAT) reports on Tuesday after the close. Thomson Reuters has estimates of $0.37 EPS and $2.77 billion revenues; next quarter estimates are $0.39 EPS and $2.82 billion revenues.  Shares are trading around $14.10 with a consensus price target of $17.63 and the 52-week trading range is $10.27 to $16.93.  As the company is in a merger, we expect no nasty surprises from the top chip equipment maker.

Autozone Inc. (NYSE: AZO) reports on Tuesday. Thomson Reuters has estimates of $4.99 EPS and $1.92 billion revenues; next quarter estimates are $6.82 EPS and $2.58 billion revenues.  Shares are trading around $277.00, its consensus price target is $275.63 and the 52-week trading range is $177.66 to $288.50.

Medtronic Inc. (NYSE: MDT) reports on Tuesday. Thomson Reuters has estimates of $0.93 EPS and $4.29 billion revenues; next quarter estimates are $0.84 EPS and $4.00 billion revenues.  Shares are trading around $42.25. its consensus price target is $42.27, and the 52-week trading range is $30.80 to $43.33.

TiVo Inc. (NASDAQ: TIVO) reports on Tuesday and we expect the main focus to be around its patent and I.P. case that recently drove shares. Thomson Reuters has estimates of -$0.31 EPS and $41.98 million revenues; next quarter estimates are -$0.28 EPS and $47.71 million revenues.  Shares are trading around $9.50, it has a loose consensus price target is $14.82 (treat that as very loose), and the 52-week trading range is $6.92 to $12.65.

99 Cents Only Stores (NYSE: NDN) reports on Wednesday. Thomson Reuters has estimates of $0.26 EPS and $372.76 million revenues; next quarter estimates are $0.27 EPS and $362.19 million revenues.  Shares are trading around $20.20, its consensus analyst price target is $20.50, and the 52-week trading range is $13.12 to $20.59.

Computer Sciences Corp. (NYSE: CSC) reports on Wednesday. Thomson Reuters has estimates of $1.16 EPS and $4.23 billion revenues; next quarter estimates are $0.97 EPS and $4.02 billion revenues.  Shares are trading around $44.65, its consensus price target is $49.95 from analysts, and the 52-week trading range is $39.61 to $56.61.  CSC is one which has just remained a serial disappointment.

99 Cents Only Stores (NYSE: NDN) saw shares urge on Friday after receiving a $1.3 billion takeover from the founding Schiffer/Gold family and private equity firm Leonard Green & Partners.  The terms came to $19.09, but this represented only 14% premium from the close on Thursday.  Law firms have not yet sued to halt the merger or demand more from the merger, but there have been at least two investigative notices sent by law firms regarding the takeover.  The good news is that shares are now up at about 6 or 7 year highs.  The bad news is that 99 Cents Only shares were above $30.00 back in 2003.

Where this gets interesting is elsewhere in dollar stores and discounting stores.  Family Dollar Stores Inc. (NYSE: FDO) just release results this morning showing a 5.1% gain in comparable store sales.  The company also recently told Nelson Peltz to go take a hike with his $55 to $60 per share “interest in an offer” recently.  Now comes word that Trian is reiterating its interest in acquiring the company.

What about elsewhere?  Big Lots, Inc. (NYSE: BIG) is considered a close-out retailer and is not technically a dollar store.  It does serve much of the same consumer though, via the rise of the trade-down economy.  The company has considered strategic alternatives and is considered a buyout target.  It will boil down to price.

KKR took Dollar General (NYSE: DG) private in 2007 and it came back to the public markets in an IPO in late-2009.  Dollar General is now one of our stocks to own for the next decade as a result of the secular trends being seen here.

Technically, this just leaves Dollar Tree, Inc. (NASDAQ: DLTR) as the last man standing in the world of M&A in dollar stores.  It remains independent and has not been involved in any recent buyout rumors of late.

When you consider these dollar stores and discounters, there is a new way to evaluate them.  They are not just for poor people.  The group is in many ways the new Wal-Mart Stores Inc. (NYSE: WMT).  The group will ultimately run out of favor or level off as you see with all industries.  That just still seems quite a ways off.  The trade-down economy sure seems to be a secular trend even though the economy and stock market has recovered so much from the lows.

Even if you don’t shop at dollar stores you can at least still have some entertainment asking the cashier how much each item costs. ‘The New Normal’ is a phrase that sort of died out after the market recovered so much but the underlying trend and underlying thesis remains.  Dollar store chains and discounting chains are sitting in the sweet spot right now.  If these trends are going to be in place for some time, dollar stores and discounters will remain in the spotlight for private equity investors. 

Tune in to our M&A Daily at 12:00 PM EST each day.

JON C. OGG