Market Overview

The Concern For Dollar Tree Isn't Amazon, It's Family Dollar

Share:
The Concern For Dollar Tree Isn't Amazon, It's Family Dollar

Bernstein said in a note Thursday the concern regarding Dollar Tree, Inc. (NASDAQ: DLTR) isn't Amazon.com, Inc. (NASDAQ: AMZN) but its own Family Dollar Stores.

Like The Dollar Stores

Analyst Brandon Fletcher clarified that he generally likes the dollar stores, as he views these stores as defensible from Amazon with compelling growth even after the Whole Foods Market, Inc. (NASDAQ: WFM) deal.

Family Dollar Turnaround A Long Shot

However, the analyst said he remains concerned about the Family Dollar banner of Dollar Tree and high expectations of a near-term fix (see Fletcher's track record).

Although conceding that KKR brought about a dramatic improvement in Family Dollar, Bernstein said it continues to think a turnaround at Family Dollar would be more difficult, more attenuated and more resource intensive, given that the synergies were limited.

The firm thinks the price at which Family Dollar becomes a free option is getting closer. That said, the firm said it would want to see evidence of a new Family Dollar before it can see a new path for Dollar Tree.

While believing that the sell-off in the dollar store space is overdone, the firm said the Dollar Tree slide is orchestrated by three main factors:

    1. Family Dollar turnaround not delivering on investor expectations, primarily on comps.
    2. Family Dollar becoming vulnerable in the wake of intensifying urban/suburban competition following the Amazon/Whole Foods deal.
    3. Impatient investors selling the shares to invest in other profitable opportunities.

"We continue to like Dollar Stores in an AMZN/WFM world but believe mediocre retail concepts will struggle if subscale and more suburban/urban," the firm said.

"We think things get worse before they get better for Family Dollar from Aldi & Wal-Mart Stores Inc (NYSE: WMT) long before AMZN matters."

Bernstein rates Dollar Tree an Underperform, with a $65 price target.

Related News:

Dollar Store Bears Come Out Of Hibernation; Deutsche Stays Positive On Dollar Tree

Retail Job Losses: Does This Point Toward Protracted Sectoral Weakness?
______
Image Credit: By Bart Everson - Flickr: Family Dollar, CC BY 2.0, via Wikimedia Commons

Latest Ratings for DLTR

DateFirmActionFromTo
Oct 2019MaintainsOutperform
Aug 2019MaintainsOutperform
Aug 2019MaintainsOutperform

View More Analyst Ratings for DLTR
View the Latest Analyst Ratings

Posted-In: Aldi Bernstein Brandon FletcherAnalyst Color Short Ideas Reiteration Analyst Ratings Trading Ideas Best of Benzinga

 

Related Articles (AMZN + DLTR)

View Comments and Join the Discussion!

After Bluebird's 75% Gain In 2017, Analysts At BTIG Downgrade To Neutral

Goldman's ActiveBeta Suite Expands To Small Caps