BofA update shows where active managers are putting money
On Wednesday, CFRA analyst Arun Sundaram increased the 12-month price target on Dollar Tree stock (NASDAQ:DLTR) to $92, up from the previous target of $74, while keeping a Hold rating on the shares. The revision comes as Dollar Tree is preparing to announce its first-quarter results for April on June 4. Sundaram’s adjustment reflects a valuation of approximately 15 times the projected fiscal year 2027 earnings per share (EPS) of $6.12, a slight decrease from the earlier forecast of $6.16. This new target contrasts with the historical average price-to-earnings (P/E) ratio of 18 times, which aligns with the company’s current P/E ratio of 18.6x. According to InvestingPro analysis, Dollar Tree, with its market capitalization of $18.9 billion, appears slightly undervalued based on its Fair Value calculations.
The analyst noted that Dollar Tree’s shares have seen an uplift following recent positive developments regarding tariffs and the company’s decision to divest its underperforming Family Dollar segment. This positive momentum is reflected in InvestingPro data, showing a remarkable 26.4% return over the past six months. Sundaram pointed out that while Dollar Tree’s initial fiscal year 2026 outlook only accounted for the 10% tariff on Chinese imports starting in February 2025, the remaining tariff risks appear to be manageable. This is due to the company’s ability to mitigate these risks through various strategies.
Dollar Tree’s efforts to mitigate tariff impacts include rolling out multi-price points across its stores, with a goal to reach 5,200 locations by the end of the year, up from 2,900 the previous year. Additionally, the company is working on supplier cost concessions, product specification changes, removing items that are not cost-effective, and diversifying its country of sourcing. Sundaram also mentioned that consumer trade-down behavior, where consumers opt for less expensive products during economic downturns, could potentially bolster the company’s top-line growth.
Despite these positive factors, Sundaram also highlighted certain challenges Dollar Tree faces. Elevated temporary labor costs associated with the multi-price point rollout are expected to be a near-term headwind for the company. With annual revenue of $17.6 billion and a healthy gross profit margin of 35.8%, InvestingPro analysis reveals several additional insights about Dollar Tree’s financial health and future prospects, available in their comprehensive Pro Research Report. In conclusion, Sundaram stated that at present, the risk/reward balance for Dollar Tree stock appears to be even.
In other recent news, Dollar Tree has been the subject of several noteworthy developments. KeyBanc Capital Markets raised its earnings per share (EPS) estimate for Dollar Tree to $4.65 for 2025, up from $4.55, due to better-than-expected first-quarter performance. This comes as the retailer adjusts prices on certain items from $1.25 to $2.00, in response to tariff impacts. Meanwhile, Morgan Stanley (NYSE:MS) maintained an Equal-weight rating on Dollar Tree, expressing concerns about the potential negative effects of tariffs on profitability, although they expect a 4% increase in comparable store sales for the first quarter of 2025.
Additionally, Telsey Advisory Group increased the price target for Dollar Tree to $95 from $82, citing strategic initiatives such as opening new stores and enhancing customer value and convenience. The company also announced leadership changes at its subsidiary, Family Dollar, as it prepares for a planned divestiture expected to finalize in the second quarter of 2025. Duncan MacNaughton will become Chairman and CEO, with Jason Nordin continuing as President. Finally, Bernstein analysts noted that Dollar Tree could experience a -9.2% EPS impact due to recent US-China tariff reductions, as retailers adjust to new import strategies and cost-cutting measures.
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