NEW YORK — A top Citigroup Smith Barney analyst upped her target price on Federated Department Stores Inc. to $92.
Citigroup Smith Barney equity analyst Deborah Weinswig also said Federated could generate money to fund the acquisition by selling May Department Store Co. assets, such as the Lord & Taylor flagship in New York and the retailer's bridal group.
Federated shares rallied on Monday, the first day of trading following Weinswig's report. In the morning session, the stock reached a 52-week high of $72.49 before pulling back. By midday, the stock was holding steady at $72.17, up 1.89 percent from the prior close. But the price fell at the bell, ending the day up 1.2 percent, at $71.69.
Weinswig's action followed the planned sale of Federated's credit card business in the wake of its merger with May, which is expected to close later this year.
Weinswig said Federated could sell Lord & Taylor and May's Bridal Group to generate money to pay down additional debt or buy back shares. This scenario was not included in Weinswig's prior stock valuation model on Federated. Aftertax proceeds from the sale of the Lord & Taylor flagship and the Bridal Group could generate approximately $384 million and $887 million respectively, Weinswig estimated.
The retailers could not be reached for comment.
In her research note, issued Friday after the market closed, Weinswig said the sale of the credit business to Citigroup was "the first catalyst in the multifaceted Federated story, as it enables the company to monetize assets and strengthen its balance sheet, while retaining an income stream." The sale of the credit business is generating $4.5 billion in aftertax proceeds, which the retailer plans to use to fund the acquisition.
Weinswig acknowledged in the research note that next year's financial results for the merged company are expected to be depressed due to integration activity following the merger. But Weinswig said Federated should be valued as a turnaround story as it focuses on improving the May operations.
The analyst raised her target price on Federated to $92 from $80.
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