Deutsche Bank cut its price target on Dollar Tree, Inc. (NASDAQ: DLTR) from $74 to $72 and maintained a Hold rating Thursday with the Family Dollar Stores, Inc. (NYSE: FDO) shareholder vote a week away.
Analyst Paul Trussell noted that “the odds continue to tilt strongly in favor of DLTR, with ISS now recommending the merger. We think the deal should be accretive by year 2 (2016) and we still view DLTR as well positioned to capitalize on strong fundamental trends. That said, we see limited room for gains ahead as we believe these positives are already reflected in the stock, and we also cite material execution risk as a downside consideration.”
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“Assuming $300M in synergies [from the merger], we expect the deal to be ~32 cents accretive (~6 percent) by year 3; higher or faster than forecasted synergies could drive upside, while downside risk flows from greater than anticipated integration challenges, especially as FDO’s 1Q15 results were underwhelming,” according to the analyst note.
Trussell concluded, “Bottom line, while we still expect DLTR to achieve lofty investor expectations, we see little room for error or upside, and reiterate our Hold.”
Dollar Tree recently traded at $66.27, down 1.63 percent.
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