BofA update shows where active managers are putting money
On Tuesday, Morgan Stanley (NYSE:MS) maintained an Equal-weight (EW) rating on Dollar Tree (NASDAQ:DLTR) shares, expressing caution due to the potential impact of tariffs on the company’s profitability. The firm highlighted that while a swift resolution to tariffs could lead to positive revisions in earnings per share (EPS) estimates, the current situation poses a profit overhang, and efforts to mitigate the effects could negatively impact shares. Despite these concerns, InvestingPro data shows Dollar Tree has demonstrated strong momentum with a 37% price increase over the past six months, though analysts anticipate a sales decline in the current year. According to InvestingPro’s Fair Value analysis, the stock appears undervalued at its current market cap of $18.2 billion.
Analysts expect Dollar Tree to report a comparable store sales increase of around 4% for the first quarter of 2025, which is slightly above the consensus estimate of approximately 3.7%. However, they anticipate that the company will miss EPS estimates for the quarter. Concerns were raised regarding the gross margin, which is expected to fall short of the consensus estimate of roughly 35.7%, as it is about 90 basis points above what would be suggested by normal seasonality. The selling, general, and administrative (SG&A) rate, on the other hand, is predicted to align with expectations.
For the full year 2025 guidance, Morgan Stanley does not foresee a change. Dollar Tree’s guidance for a 3%-5% increase in comparable store sales provides a broad range, and a 4% increase in the first quarter would likely support the reiteration of this guidance. Nonetheless, a miss in first-quarter EPS is seen as adding a modest risk to the company’s full-year EPS guidance of $5.00-$5.50, but not enough to warrant lowering the range. With the next earnings report due on May 22, InvestingPro subscribers can access additional exclusive insights and metrics to better evaluate the company’s performance potential. The platform offers comprehensive analysis through its Pro Research Report, available for over 1,400 US stocks including Dollar Tree.
The firm also noted the limited visibility regarding tariff implications, stating that the 2025 guidance only takes into account the impact of an additional 10% in tariffs on goods from China. Dollar Tree’s cost of goods sold (COGS) has an estimated 30% exposure to China. While multi-price initiatives might help offset some of the tariff pressures, they also have the potential to accelerate market share shifts toward discount stores as consumers adjust their spending habits. InvestingPro analysis reveals the company maintains a healthy gross profit margin of 35.81% and trades at a P/E ratio of 18, suggesting resilience despite these challenges. Investors seeking deeper insights into Dollar Tree’s financial health and growth prospects can access the complete Pro Research Report, which provides comprehensive analysis and actionable intelligence for informed decision-making.
In other recent news, Dollar Tree, Inc. has announced a leadership change at its subsidiary, Family Dollar, appointing Duncan MacNaughton as the future Chairman and CEO in preparation for Family Dollar’s transition to an independent entity. The divestiture is anticipated to conclude in the second quarter of 2025. Additionally, Dollar Tree has named Roxanne Weng as its new Chief Supply Chain Officer, succeeding Mike Kindy, who is retiring. Weng brings extensive experience from her previous roles at Walgreens and Uline.
Meanwhile, analysts at Bernstein have reviewed the impact of recent US-China tariff reductions on retail stocks, noting that Dollar Tree could see a significant earnings per share impact of -9.2%. Despite this, Guggenheim has raised its price target for Dollar Tree to $100, citing strong first-quarter sales and a robust multi-price point strategy. In contrast, BofA Securities has downgraded its price target for Dollar Tree to $70, expressing concerns about increased tariff costs and their effect on the company’s financial outlook.
These developments highlight the complex environment Dollar Tree is navigating, with changes in leadership and varying analyst perspectives on its financial prospects. As the company continues to adapt to market conditions, its strategies and leadership appointments are being closely monitored by industry analysts and investors.
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