BofA update shows where active managers are putting money
On Tuesday, Bernstein analysts reviewed the impact of the recent US-China tariff de-escalation on US Retailing Broadlines & Hardlines stocks. The United States and China have agreed to reduce tariffs, with a new rate of 30% set to be implemented on May 14, a significant drop from the previous 145%. This development follows negotiations held in Geneva the previous week.
Analysts at Bernstein have updated their tariff sensitivity analysis, anticipating low single-digit (LSD) price increases on average with nominal net sales impact under the de-escalation scenario. Retailers are expected to diversify approximately 30% of imports away from China and collaborate with suppliers to cut costs by 7.5%-10%. The projected earnings per share (EPS) impact varies, with Costco Wholesale Corporation (NASDAQ:COST) at the lower end with a -0.4% impact, and at the higher end, Target Corporation (NYSE:TGT) and Dollar Tree, Inc. (NASDAQ:DLTR) could see -7.8% and -9.2% impacts, respectively. Dollar Tree, with a market capitalization of $18.5 billion and current P/E ratio of 18.4x, has shown strong momentum with a 36.6% price return over the past six months.According to InvestingPro, Dollar Tree has 8 additional key investment insights available, including detailed analysis of its financial health and growth prospects. Get access to comprehensive Pro Research Reports covering what really matters for 1,400+ top stocks.
The market is believed to have already accounted for the tariff reduction, with limited additional upside anticipated. As retailers approach earnings reports, Bernstein expects them to include the latest tariff scenario in their guidance. Companies that do not address tariff concerns may be viewed negatively by investors, as this could indicate a lack of visibility or confidence in navigating the current environment. InvestingPro analysis indicates Dollar Tree is currently undervalued, with a Fair Value assessment suggesting potential upside. The company maintains a "Fair" overall financial health score of 2.3 out of 3, with particularly strong metrics in price momentum and cash flow management.
Dollar General Corp (NYSE:DG) is seen as well-positioned to maintain or raise its guidance due to minimal tariff exposure and its status as a beneficiary of trade-down consumer behavior. In contrast, Target is at risk of lowering its guidance due to factors such as weakened consumer sentiment, adverse weather conditions, a boycott related to diversity, equity, and inclusion (DEI), and competition beyond tariff risks.
For Walmart Inc. (NYSE:WMT) and Costco, despite minimal EPS impacts from tariffs, their stock valuations are considered high, trading at 37x and 54x price-to-earnings (P/E) ratios, respectively. Bernstein advises investors to seek a more opportune entry point for long-term upside.
In the home improvement sector, analysts expect a relatively weak first quarter for both Lowe’s Companies, Inc. (NYSE:LOW) and The Home Depot , Inc. (NYSE:HD) due to unfavorable weather and soft consumer sentiment. While tariff risks are seen as moderate, the demand for home improvement is expected to remain subdued with mortgage rates near 7% and consumer spending power limited.
In other recent news, Dollar Tree has been in the spotlight with several significant developments. Guggenheim has raised its price target for Dollar Tree to $100, maintaining a Buy rating, following a positive first-quarter pre-announcement and strong Easter sales. Meanwhile, BofA Securities has reduced its price target to $70, citing concerns over increased tariff expenses impacting the company’s financial outlook. In contrast, Citi has upgraded Dollar Tree from Neutral to Buy, raising the price target to $103, suggesting that the high-tariff environment could benefit the company by allowing it to increase price points without affecting consumer behavior significantly.
Additionally, Dollar Tree has announced a change in its executive team, with Roxanne Weng appointed as the new Chief Supply Chain Officer, succeeding Mike Kindy, who is retiring. Weng brings over 30 years of retail operational leadership experience to the role, including her previous position as Chief Supply Chain Officer at Walgreens. This leadership change comes as the company continues to navigate a challenging retail environment, with a focus on maintaining high standards in its supply chain network.
These recent developments highlight Dollar Tree’s strategic efforts to adapt to market conditions and tariff pressures. The company’s ability to adjust its pricing strategy and leadership changes are being closely watched by industry analysts and investors alike.
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