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On Thursday, Evercore ISI analyst Michael Montani increased the price target for Dollar Tree (NASDAQ:DLTR) shares to $85.00 from the previous $79.00, while maintaining an In Line rating. The adjustment follows Dollar Tree’s announcement of the sale of its Family Dollar business. Montani noted that the sale, priced at $1 billion, is at the lower end of the anticipated $1-3 billion range but is seen as a positive move, effectively ending what he referred to as "an unfortunate acquisition" that began in 2015. According to InvestingPro data, Dollar Tree’s shares currently trade at $69.21, suggesting potential upside based on the new target. While the company isn’t currently profitable, analysts expect positive earnings this year, with an EPS forecast of $5.43.
Montani believes that the divestiture will allow Dollar Tree to benefit from management’s undivided attention, particularly as it continues the rollout of its multi-price point Version 3.0 store remodels. These efforts are aimed at stabilizing the company’s market share in a challenging consumer environment. He emphasized the importance of enhanced execution for Dollar Tree, especially as inflation is expected to persist into the second half of 2025 and competition intensifies from various major retailers, including Amazon (NASDAQ:AMZN), Walmart (NYSE:WMT), and Aldi. InvestingPro analysis shows the company maintains a solid financial foundation with a current ratio of 1.03 and sufficient cash flows to cover interest payments, which could support its strategic initiatives.
The analyst also commented on the broader retail environment, noting that tariffs remain a significant uncertainty for retailers like Dollar Tree. Evercore ISI has adjusted its forecast for Dollar Tree, trimming it by 7% for calendar year 2025. This reflects a $0.35 earnings per share headwind from lingering expenses related to Family Dollar prior to offsetting payments in the second half of 2025, as well as the anticipated impact of the first round of tariffs, which the company expects to offset by 90%. Despite these challenges, InvestingPro data reveals the company maintains a moderate beta of 0.91 and has achieved 5.17% revenue growth in the last twelve months. Get access to over 30 additional key metrics and insights with InvestingPro’s comprehensive research report.
Montani’s report includes an updated outlook on the potential impact of tariffs on Dollar Tree and other importers, with a scenario suggesting a possible profit reduction of over 20% in a bear case. However, he views a high single-digit profit impact as more likely if tariffs remain in place.
In his commentary, Montani also highlighted his favored food retailers, which include Kroger (NYSE:KR) for value-focused investors, Casey’s General Stores (NASDAQ:CASY) for growth-oriented investors, and Sprouts Farmers Market (NASDAQ:SFM) for their potential in expanding square footage and leveraging margin opportunities. These companies are noted for their respective strategies and potential market opportunities not currently reflected in Street estimates.
In other recent news, Dollar Tree reported its fourth-quarter 2024 earnings, exceeding analyst expectations with an adjusted earnings per share (EPS) of $2.29, compared to the forecasted $2.19. However, the company’s net sales from continuing operations were $5 billion, which fell short of the expected $8.24 billion. The company also announced the sale of its Family Dollar division for approximately $1.007 billion, marking a significant strategic shift. Analysts from Telsey Advisory Group and Truist Securities adjusted their price targets for Dollar Tree stock, with Telsey raising it to $82 and Truist increasing it to $84, while maintaining their respective ratings. These changes reflect analysts’ optimism about Dollar Tree’s future performance following the divestiture. Additionally, Dollar Tree plans to open around 400 new stores in 2025, focusing on enhancing its multi-price point assortment. The company is investing in its workforce and technology, which is expected to increase SG&A expenses by 50 to 80 basis points in 2025. These developments indicate Dollar Tree’s ongoing efforts to streamline operations and focus on its primary brand.
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