BofA update shows where active managers are putting money
On Monday, Citi analyst Paul Lejeuz upgraded Dollar Tree stock (NASDAQ:DLTR) from Neutral to Buy and significantly increased the price target from $76.00 to $103.00. The adjustment comes as the analyst anticipates positive outcomes for the company in the face of rising tariffs, which affect about half of Dollar Tree’s products. Currently trading at $67.55, the stock offers compelling value with a P/E ratio of 14x, significantly below its 52-week high of $131.52. InvestingPro analysis suggests the stock is currently undervalued, with additional insights available in the comprehensive Pro Research Report.
Lejeuz explained that the general market and investor sentiment initially took a hit due to the extensive tariffs, reflected in the stock’s recent 10% decline over the past week. However, he believes that the current high-tariff environment could work in Dollar Tree’s favor. The company, which had been maintaining its pricing structure despite previous China tariffs, now has the opportunity to adjust its price points upward from $1.25 to potentially $1.50 or $1.75. This move is seen as more manageable in terms of consumer psychology compared to the initial shift away from the $1 price point in 2022. InvestingPro subscribers can access 8 additional key insights about Dollar Tree’s financial health and growth prospects.
The analyst referenced past performance to support the upgrade, noting that when Dollar Tree first moved away from the $1 benchmark, the company experienced comparable store sales growth of 9% and 6% in fiscal years 2022 and 2023, respectively. Furthermore, after a two-year transition period, Dollar Tree’s EBIT margins reached 13.7% in fiscal year 2023, an increase of 220 basis points over fiscal year 2021 and 40 basis points over fiscal year 2019. The company maintains strong financial health with a current ratio of 1.06 and sufficient cash flows to cover interest payments.
According to Lejeuz, Dollar Tree’s strong position as a value retailer sets it apart as a likely winner in a retail environment where prices are expected to rise. The company’s ability to navigate through tariff-induced cost increases while maintaining consumer appeal is at the core of the analyst’s optimistic outlook.
In other recent news, Dollar Tree, Inc. has entered into a new credit agreement, securing a $1.5 billion revolving credit facility with JPMorgan Chase (NYSE:JPM) Bank, N.A., and other lenders. This agreement includes an option for letters of credit up to $350 million and is set to mature in 2030. Additionally, Dollar Tree has established a separate 364-day revolving credit facility amounting to $1 billion, maturing in 2026. The company has also terminated its previous credit agreement from December 2021, concluding all commitments under that arrangement.
Meanwhile, BMO Capital Markets reiterated its Market Perform rating on Dollar Tree, maintaining a price target of $70. The firm expressed concerns about the company’s digital strategy and inventory management. CFRA has adjusted Dollar Tree’s 12-month price target to $74, citing the impact of the Family Dollar sale and operational challenges. Guggenheim Securities reduced its price target to $95 but maintained a Buy rating, highlighting the potential of Dollar Tree’s multi-price point products. Finally, Bernstein adjusted its price target to $78, acknowledging the potential positive impact of the Family Dollar sale on Dollar Tree’s earnings per share.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.