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What The Street Thinks Of Dollar Tree Now

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What The Street Thinks Of Dollar Tree Now

Shares of Dollar Tree, Inc. (NASDAQ: DLTR) plunged more than 8 percent during Tuesday's trading session after the company reported its Q2 results and guidance.
Here is a roundup of what Wall Street's top analysts are saying after digesting the print and conference call.

Cantor Fitzgerald: Synergies Not Reflected In Stock Price

Laura Champine of Cantor Fitzgerald commented in a note that she remains bullish on Dollar Tree as the synergies it will realize following the Family Dollar acquisition are not reflect in the stock's valuation.

Champine said management's synergy estimates appear "very conservative" and do not include operational improvements that will come in the form of Dollar Tree's "strong" management and "superior" merchandising teams.

Commenting on the second quarter, Champine stated that the company's stand-alone earnings per share of $0.67 met her expectations while a stand-alone same-store sales growth of 2.4 percent (stripping out foreign exchange) was also in-line with her expectations.

Finally, the analyst noted that the company's sales guidance for 2015 "looks reasonable."

Shares remain Buy rated with a price target lowered to $90 from a previous $95.

Related Link: Dollar Tree Revisits Mini-Flash Crash Low After Q2 Results

Credit Suisse: Core Momentum ‘Slows'

Edward Kelly of Credit Suisse commented in a note that Dollar Tree provided investors with a "disappointing" print as core sales momentum "slowed," its transitional performance was "soft," and management "unexpectedly failed" to provide short-term earnings guidance.

Kelly said it is "difficult" to assess the company's bottom line (which included Family Dollar's results for one month) and it is "unclear" if consensus estimates are comparable. The analyst added that core Dollar Tree earnings of $0.67 was "modestly disappointing" due to the 2.4 percent comps that fell short of the 3.4 percent consensus estimate.

Finally, Kelly suggested that execution risk on the acquisition is "high" as the company may "struggle to digest and turnaround" its acquired assets. Moreover, the lack of near-term earnings visibility is "disappointing" and could weigh on the stock.

Shares remain Neutral rated with a price target lowered to $70 from a previous $75.

Jefferies: Long Term Focus, Short-Term Issues

Daniel Binder of Jefferies commented in a note that six factors contributed towards the decline in shares on Monday: 1) core same-store sales and profits were short of expectations, but still within plan, 2) same-store sales guidance for the year was narrowed to a positive low-single-digit, 3) Family Dollar profitability eroded more than expected, 4) earnings per share guidance was not announced, 5) management seemed "less confident" over earnings per share accretion in the first year, and 6) cannibalization from Dollar Tree store conversions were cited.

Binder said management's investments in integrating its acquired assets could lead to "less predictable" earnings in the short term. In fact, the analyst suggested that the complexity of the acquisition is "above average" given the required Family Dollar turnaround during integration and less familiar business model to Dollar Tree.

However, the analyst acknowledged that management's synergies guidance may prove to be "conservative relative to other combinations" over the longer term with upside coming from better sourcing and supply chain savings and better run Family Dollar stores.

Bottom line, the stock may hover around its current level until investors gain greater confidence that earnings per share won't see further integration pressures in the coming quarters.

Shares remain Hold rated with a price target lowered to $72 from a previous $75.

RBC Capital Markets: Sell-Off Creates ‘Attractive Entry Point'

Scot Ciccarelli of RBC Capital Markets commented in a note that Dollar Tree's core business delivered a "solid" quarter with accelerating two and three-year stacked comps and 10.5 percent EBIT growth. However, the company's results appear "distorted" due to "rapid changes" which has created "a lot of noise" around near-term earnings.

Ciccarelli continued that Family Dollar's results were "confusing" and "unlikely represented" of the company's run rate as Dollar Tree used a four-week stub period to get Family Dollar onto its own fiscal year. The analyst suggested that it is "highly unlikely" that investors will extrapolate the results posted during the four-week period and make long-term conclusions given all of the changes occurring at the Family Dollar operation.

Ciccarelli added that the merchandising teams are working together and reaching out to vendors to lower costs with the improved scale and buying power. In addition, new management structures and responsibilities have been set out and the company is creating "blue prints" for a supply chain revamp.

More importantly, the analyst noted that management is working on building sales momentum at Family Dollar through clearing non-productive inventory and working on improved planograms (how and where specific retail products should be placed on shelves to maximize sales) to turn improve store productivity and margins.

Bottom line, re-bannering and profitability improvement opportunities could result in "significant" upside over time. As an example, if Family Dollar were to replace the bottom 10 percent of Family Dollar stores with average Dollar Tree boxes, this alone could generate $150 million in EBIT to Dollar Tree. As such, the analyst remains "confident" in the company's long-term earnings per share power and are "aggressive buyers" following Monday's selloff.

Shares remain Outperform rated with a price target lowered to $86 from a previous $91.

Latest Ratings for DLTR

DateFirmActionFromTo
Feb 2020Raymond JamesReinstatesMarket Perform
Jan 2020B of A SecuritiesDowngradesBuyNeutral
Jan 2020Morgan StanleyMaintainsEqual-Weight

View More Analyst Ratings for DLTR
View the Latest Analyst Ratings

Posted-In: Cantor Fitzgerald Credit Suisse Daniel Binder. RBC Capital MarketsAnalyst Color Long Ideas Top Stories Analyst Ratings Trading Ideas Best of Benzinga

 

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