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On Thursday, Guggenheim Securities adjusted its outlook on Dollar Tree stock (NASDAQ:DLTR), reducing the price target from the previous $100.00 to $95.00 while continuing to endorse the stock with a Buy rating. The decision follows the company’s strategic move to divest its Family Dollar (FDO) business, which has been considered a less favorable asset. According to InvestingPro data, Dollar Tree’s stock currently trades at $74.90, significantly below its 52-week high of $137.14, suggesting potential upside opportunity.
The firm’s analyst noted that the divestiture of FDO marks the end of a strategic misstep and highlights the long-term potential of Dollar Tree’s focus on multi-price point (MPP) products. Despite recent comparable store sales growing at 2%, which is below the long-term target of 4-6%, the analyst remains optimistic. The ongoing Dollar Tree 3.0 store conversions are still in the initial phase, and the current economic environment has not been weak enough to significantly drive customers to lower-priced goods. InvestingPro analysis shows the company maintains a "Fair" overall financial health score, with particularly strong ratings in relative value and cash flow metrics.
The report also pointed out that Dollar Tree is facing margin pressures due to investments in labor, infrastructure, and technology, even as comparable store sales are nearing break-even levels. These factors are contributing to the company’s current valuation multiples, which are seen as modest at 7.8 times EBITDA and 13.4 times price-to-earnings, based on Guggenheim’s estimates for 2025. Current InvestingPro data indicates the company maintains a gross profit margin of 31.34% and shows revenue growth of 5.17% over the last twelve months. For deeper insights into Dollar Tree’s valuation and financial health, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
Looking ahead, the analyst anticipates improvements in the company’s earnings per share visibility towards nearly $7, as the FDO transaction is completed, share repurchases are accelerated, and comparable store sales pick up to a 3-4% range. These developments are expected to support a more robust valuation for the company’s stock. Despite the reduction in the price target, the firm reiterates its confidence in Dollar Tree’s stock performance with a continued Buy rating. InvestingPro analysis indicates that net income is expected to grow this year, with analysts forecasting EPS of $5.43 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. This strategic move is anticipated to positively impact Dollar Tree’s earnings per share, with analysts at Bernstein estimating a potential 9% increase in fiscal year 2025 and an 18% boost for fiscal year 2026. UBS analysts have maintained a Buy rating on Dollar Tree, with a price target of $95, highlighting the divestiture as a significant step in enhancing shareholder value. Piper Sandler and Loop Capital both reiterated neutral ratings, with price targets of $72 and $75, respectively, citing concerns over Dollar Tree’s aggressive sales growth projections and the need for the company to meet consensus expectations.
KeyBanc reaffirmed a Sector Weight rating, noting that Dollar Tree’s fourth-quarter results exceeded expectations and the sale of Family Dollar will allow the company to focus on its core business model. The company plans to utilize the cash proceeds from the sale for share repurchases and cost-saving initiatives. Analysts at KeyBanc and Loop Capital also pointed out potential risks, such as tariffs and increased competition, which could impact Dollar Tree’s performance. Despite these challenges, Dollar Tree’s management is optimistic about the positive effects of the divestiture and the company’s strategic direction.
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