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On Thursday, CFRA analyst Arun Sundaram adjusted the 12-month price target for Dollar Tree stock (NASDAQ:DLTR) to $74, down from the previous target of $75, while maintaining a Hold rating on the shares. The revision follows the company’s fourth-quarter fiscal year 2025 results and the anticipated sale of Family Dollar. Currently trading at $75.75, the stock sits between analyst targets ranging from $70 to $104. According to InvestingPro analysis, Dollar Tree appears slightly undervalued based on its Fair Value estimate.
Sundaram cited several reasons for the price target adjustment, including the impact of the Family Dollar sale on future earnings and various operational challenges. The analyst reduced the fiscal year 2026 earnings per share (EPS) forecast to $5.19 from $6.24, reflecting the sale’s effects and additional pressures from tariffs, as well as selling, general, and administrative (SG&A) expenses, which encompass labor, store maintenance, and depreciation and amortization costs.
The new price target is based on 12 times the projected fiscal year 2027 EPS of $6.16, which Sundaram believes represents a significant but reasonable discount to the historical average price-to-earnings ratio of 18 times. The fiscal year 2027 EPS is expected to mirror a more typical year, with tariff mitigation efforts nearing completion and Transportation Security Administration (TSA) payments compensating for certain Family Dollar corporate expenses. Want deeper insights? InvestingPro subscribers get access to exclusive analysis, including 12+ additional ProTips and a comprehensive Pro Research Report that transforms complex Wall Street data into actionable intelligence.
The analyst anticipates fiscal year 2026 to be a period of transition for Dollar Tree, with the company facing tariff headwinds, the divestiture of Family Dollar, and substantial reinvestments in areas such as store labor and maintenance. Despite Dollar Tree’s ongoing strategy of introducing higher price points within its stores, which has temporarily boosted comparable store sales, Sundaram expressed skepticism regarding the long-term viability of this growth strategy. He cautioned that it might increase competition with larger retailers and potentially dilute the Dollar Tree brand identity. The company has maintained 5.2% revenue growth over the last twelve months, though analysts expect more modest growth of 1% for fiscal year 2025.
In other recent news, Dollar Tree has finalized the sale of its Family Dollar segment to Brigade Capital Management and Macellum Capital Management for approximately $1 billion, with the transaction expected to close in the second quarter of 2025. Analysts at Bernstein noted that this divestiture could lead to a 9% increase in earnings per share for fiscal year 2025 and an 18% boost for fiscal year 2026. UBS also maintains a Buy rating with a $95 target, highlighting the sale as a significant step in enhancing shareholder value, which is not yet fully reflected in the stock’s valuation. Guggenheim has adjusted its price target to $95 while maintaining a Buy rating, emphasizing the potential for improved earnings per share visibility as the company focuses on multi-price point products and store conversions.
Piper Sandler, however, expressed caution with a Neutral rating and a $72 target, citing uncertainties around Dollar Tree’s aggressive same-store sales growth projections and the impact of tariffs. KeyBanc reaffirmed a Sector Weight rating, recognizing the sale as a strategic shift that could streamline operations and focus on cost-saving opportunities. Despite the optimistic outlook on Dollar Tree’s specific strategies, KeyBanc remains cautious due to potential risks such as tariffs, increased competition, and changes to government assistance programs like SNAP. These recent developments reflect a broad range of analyst perspectives on Dollar Tree’s strategic direction and financial prospects.
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