3 Reasons To Like Dollar Tree Stores, According To Piper Jaffray

After holding a neutral stance on Dollar Tree, Inc. DLTR dating back to at least 2015, there are now three reasons Piper Jaffray is willing to turn bullish on the stock.

The Analyst

Piper Jaffray's Peter Keith upgraded Dollar Tree's stock from Neutral to Overweight with a price target lifted from $102 to $112.

The Thesis

Dollar Tree is making "sensible investments" in its Family Dollar unit to support sales and comp growth. The company, for example, is looking to accelerate store renovations to 450 units a year and accelerating a beer and wine roll-out to 700 stores. The net result of these initiatives could yield a 2 percent improvement in comp trends by early 2019.

The dollar store retailer's debt rating was upgraded at both Moody's and S&P in early March, the analyst wrote. This represents an opportunity for management to oversee a debt refinancing program and yield a cash savings of $45 million in interest expense by 2019, or 15 cents per share in EPS.

Keith said Dollar Tree's stock is trading an attractive valuation when factoring in the aforementioned improvements. Specifically, the company should earn $6.61 per share in 2019 and the analyst's price target is based on a 17 times multiple, which is still a discount to its five-year median of 18 times.

Price Action

Shares of Dollar Tree were trading higher by around 2.7 percent Monday at $94.43.

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