Analyst: Dollar Tree Is 'One Of The Most Defensible Retail Concepts'

Dollar Tree, Inc. DLTR was upgraded by Bernstein Monday after analysts at the firm changed their viewpoint on the discount retailer and said they may have hesitated too long.

While Dollar Tree is a “great retailer,” Bernstein initiated the company at Underperform due to concerns about Family Dollar, which the firm viewed as “far more challenging to fix than most investors realized,” analyst Brandon Fletcher said in a note.

Dollar Tree bought Family Dollar in a $9.1-billion acquisition deal in 2015.

Family Dollar has work left to do on assortment, layout and inventory, but Dollar Tree is strong enough to carry the stock even if Family Dollar weakens, Fletcher said (see his track record here).

“Clearly, we got too cute and missed the right time to pivot.”

Bernstein upgraded Dollar Tree from Underperform to Market-Perform and raised its target price from $65 to $78.

The retailer reported a second-quarter EPS of 98 cents against an 87-cent estimate and sales of $5.28 billion versus a $5.24 billion estimate before the open on Aug. 24. Dollar Tree same-store sales were up 3.9 percent and Family Dollar sales increased by 1 percent.

Alone At The $1 Price Point

Dollar Tree is in fact a Lebanese cedar, Fletcher said: One that “lives for a long time, grows in tough conditions and can widen its reach on price points over time.”

The retailer’s standalone value has grown, and its subsidiary Family Dollar had a good quarter and could have a more compelling upside story within one to two years, the analyst said.

Dollar Tree’s model of selling everything for $1 leaves it with little to no major competition and “largely immune” from Amazon.com, Inc. AMZN, since the cost of shipping is prohibitive, Fletcher said.

“In our view, the Dollar Tree banner is one of the most defensible retail concepts, period.”

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