Morgan Keegan & Co. Maintains Fred's (FRED) Outperform Rating

Morgan Keegan & Co. analysts John R. Lawrence and Benjamin Brownlow maintained their Outperform rating for shares of Fred's, Inc. (Nasdaq: FRED). Morgan Keegan & Co. does not issue price targets.

Although operating margins fell slightly below the analysts' predicted 2%, 4th quarter estimates of 15 cents earnings per share were in line with consensus estimates.

The analysts said that the continued improvement in sales trends will be the catalyst for price appreciation.

The Morgan Keegan & Co. analysts wrote, "we continue to view FRED shares as a solid risk / reward situation as management is in year two of a turnaround plan that is to move operating margin toward 4%. Improvement in sales trends throughout the year as a result of the remodel program is the major factor to improved traffic patterns. Approximately 70% of the fleet should have this new format by 2012 whch gives the chain a much more consistent look. Since the shares trade at only a slight premium to book value, solid shareholder returns are possible as the execution of the plan unfolds. Management has generated $82 million of free cash flow over the past two years."