Cantor: This Is The 'Key Catalyst' For Dollar Tree

In a report published Friday, Cantor Fitzgerald analysts maintained a Buy rating on Dollar Tree, Inc DLTR, saying that the shares do not reflect the likely synergies from the Family Dollar Stores, Inc FDO acquisition. The price target has been reduced from $96 to $95. The analysts estimate $300MM in annual cost savings by year three of the acquisition. "We expect the 330 stores will be Family Dollar locations likely sold at fire sale prices given the FTC's mandate, in our view. Dollar Tree believes the sold locations account for $45.5MM in operating income," the report said. Dollar Tree's SSS rose 3.4 percent in 1Q15, slightly lower than the estimate for 4 percent growth. The SSS estimate for FY15 has been reduced by 90bps to 1.6 percent. The company's gross margin contracted 42bps y/y in 1Q15, while SG&A expense rate was flat. "Despite the softer 1Q15 performance, we believe shares will trade higher as the FDO merger nears completion," the analysts wrote. Dollar Tree reiterated its EPS guidance for FY15 at $3.30-$3.50. The EPS estimate has been reduced by a penny to $3.39. "We believe there is considerable upside as management's synergy estimates appear very conservative to us, and they do not include operational improvements we expect as FDO benefits from Dollar Tree's strong management and superior merchandising team. The Federal Trade Commission's review is progressing, but the company pushed back the expected closing date roughly two months to early July," the analysts added.