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Can First-Quarter Results Help Dollar Tree Recover Losses?

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Dollar Tree’s stock market performance

Dollar Tree (DLTR) delivered a stellar performance in the stock market in 2017. Its stock soared as much as 40% during the year, as the company delivered better-than-expected results every quarter.

However, its fortunes changed after the fourth-quarter results, which it reported in early March. The company missed expectations and lowered guidance, which caused its stock price to plunge 17%. DLTR hasn’t been able to come out of the red since then and is sitting on a YTD (year-to-date) loss of ~12%. Maybe a strong first quarter is all that the company needs to get back into the green.

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Wall Street is positive on DLTR

The Wall Street is optimistic about Dollar Tree and expects a 19% surge in its stock price over the next year. DLTR is currently trading at $94.65, 22% below its 52-week high price.

The company is rated a 2.0 on a scale of one (strong buy) to five (strong sell). It has a slightly better rating than competitor Dollar General (DG), which is rated a 2.2. The two discount store retailers have a better score than supermarket Kroger (KR) and retail giant Walmart (WMT), which both have scores of 2.3.

71% of the 28 analysts tracking Dollar Tree rate its stock as a “buy.” In comparison, 57% of analysts recommend buying Dollar General, 44% recommend Walmart, and 46% recommend Kroger stock. The remaining 29% of analysts have set a “hold” rating on DLTR. There are no “sell” recommendations on the discount retailer.

Valuations

Dollar Tree is currently trading at a one-year forward price-to-earnings ratio of 16.6x versus a three-year average of 20x. Dollar General (DG) is trading at similar valuations of 15.8x versus a three-year average of 17x. Thus, both companies are currently cheaper than their historical average.

However, Dollar General has the better near-term earnings potential of the two. Its earnings are projected to rise 32% over the next 12 months. In comparison, Dollar Tree’s profits are expected to increase 15.8% over the same period. Lower effective tax rates following the implementation of the Tax Cuts and Jobs Act will likely drive the earnings of both the companies.

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