UPDATE: J.P. Morgan Raises PT on Dollar Tree Following Management Meetings

In a report published Monday, J.P. Morgan analyst Matthew R. Boss reiterated an Overweight rating on Dollar Tree DLTR, and raised the price target from $53.00 to $55.00.

In the report, J.P. Morgan noted, “We hosted meetings at Dollar Tree HQ with senior management in Chesapeake, VA. The tone at the top was clear confidence in both the near term (2H13 top-line opportunity) and long term (no EBIT margin ceiling in place). Still a misunderstood story in our view, margin ‘control' was the theme of the day with management speaking to its ability to manufacture gross margins (category buying targets w/ IMU the only variable) driving both EBIT dollar and margin expansion over time (13% prior peak near-term goal). Looking ahead, we believe 2H13 could prove the inflection point (Sept Analyst Day/ 3Q EPS) with easing consumables compares (vs. 1Q12 at +LDD), discretionary initiatives gaining traction (stationary, impulse) and capital allocation “worth watching” given an under-leveraged balance sheet (~2.5x debt/EBITDAR today w/ 3.0x = 1.3B incremental buyback power). With a mid-teens+ compounding EPS backdrop (base case) comprised of (1) 3-5% SSS (3.0% core build), (2) HSD Sq Ft Growth (~9 years to US saturation), (3) GPM stability (manufactured margins), and (4) low-cost model (1-2% leverage point), we remain OW on Dollar Tree and raise our Dec '13 price target to $55.”

Dollar Tree closed on Friday at $49.12.