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On Thursday, Raymond (NSE:RYMD) James analyst Bobby Griffin maintained a Market Perform rating on Dollar Tree stock (NASDAQ:DLTR), following the company’s release of its fourth quarter fiscal year 2024 results. According to InvestingPro data, Dollar Tree, with its current market capitalization of $14.88 billion, is trading at $69.21, showing signs of being undervalued based on comprehensive Fair Value analysis. The analyst highlighted the significant step Dollar Tree took with the announcement of its Family Dollar division’s divestiture for $1.0 billion, expected to close in June 2025. This strategic move is aimed at offloading a problematic asset, originally purchased for $8.5 billion in 2015, to concentrate on refining operations and enhancing the more profitable and distinctive Dollar Tree segment.
Despite the positive strategic developments, Dollar Tree faces near-term challenges. The analyst forecasts a 50 basis point decline in EBIT% for fiscal year 2025, adding to a 180 basis point compression for the RemainCo in fiscal year 2024. InvestingPro data reveals the company’s current financial health score is rated as ’FAIR’, with particularly strong performance in relative value metrics. While the company posted negative earnings in the last twelve months, analysts expect a return to profitability this year with projected earnings per share of $5.43. Factors contributing to this outlook include increased SG&A expenses, shrink pressures, potential tariff risks from Mexico, Canada, and China, as well as additional costs from dark stores post-divestiture and higher depreciation and amortization expenses.
Management’s ability to mitigate 90% of the tariffs from the initial 10% China tariff round in February 2025 and the company’s growing appeal to middle and high-income shoppers are seen as positive signs of adaptability. Furthermore, the multi-price point strategy that contributed to a 2.20% comparable sales lift in the fourth quarter of fiscal year 2024 and the potential for corporate SG&A reductions are encouraging for the company’s long-term outlook.
However, the macroeconomic environment remains uncertain and cost pressures are high. These factors underscore the need for further actions to improve operating leverage and drive consistent earnings growth, which could lead to a reevaluation of Dollar Tree’s stock multiple. With revenue of $31.22 billion and an EBITDA of $2.68 billion in the last twelve months, the company maintains strong operational metrics. For deeper insights into Dollar Tree’s valuation and growth potential, investors can access comprehensive analysis through InvestingPro’s detailed research reports, which provide expert analysis on over 1,400 US stocks. The adjusted earnings per share (EPS) from continuing operations for the fourth quarter of fiscal year 2024 was reported at $2.11, compared to $2.49 in the same period of the previous year. Additionally, Dollar Tree’s adjusted operating income for the Dollar Tree banner fell short of consensus estimates by $25 million, influenced by an unexpected $25 million anti-dumping duty related to paper plate products.
In other recent news, Dollar Tree has reported its fourth-quarter 2024 earnings, which exceeded analyst expectations with an adjusted earnings per share (EPS) of $2.29, surpassing the forecasted $2.19. The company’s net sales from continuing operations reached $5 billion, although this was below the revenue forecast of $8.24 billion. Additionally, Dollar Tree announced the sale of its Family Dollar division for approximately $1.007 billion, a strategic move that has been well-received by analysts. As a result, Evercore ISI, Telsey Advisory Group, and Truist Securities have all raised their price targets for Dollar Tree, with Evercore ISI setting it at $85, Telsey at $82, and Truist at $84, while maintaining their respective ratings.
The sale of Family Dollar is viewed as a strategic shift that will allow Dollar Tree to streamline operations and focus on its primary brand. The company is actively working on transformation efforts, including the rollout of its multi-price point Version 3.0 store remodels, which have shown promising results with a comparable sales increase of 2.2% over other formats. Analysts have noted Dollar Tree’s strong sales momentum and the company’s expectation of 3%-5% comparable store sales growth, which is better than most competitors. The company plans to open approximately 400 new stores in 2025 and is investing in its workforce and technology to improve the overall shopping experience.
Despite the positive earnings report, Dollar Tree faces challenges from tariffs and inflation, which are expected to persist into the second half of 2025. Evercore ISI has adjusted its forecast for Dollar Tree, trimming it by 7% for calendar year 2025 due to lingering expenses related to Family Dollar and the anticipated impact of tariffs. Analysts have expressed confidence in Dollar Tree’s potential for a higher market re-rating, supported by strategic moves and financial strengths.
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