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Dollar Tree Stock: Higher Target Price after Q4 Results

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Analysts’ positive reaction

Dollar Tree (DLTR) stock rose 5.1% on March 6 after the company reported better-than-expected results for the fourth quarter of fiscal 2018[1. Fiscal Q4 2018 ended on February 2, 2019]. The company announced accelerated transformation plans for the Family Dollar banner. The stock rose 2.8% on March 7.

Dollar Tree’s sales fell 2.4% to $6.21 billion in the fourth quarter. However, the sales beat analysts’ estimate of $6.19 billion. The same-store sales rose 2.4%—compared to analysts’ expectation of 1.5%. In Part 2, we’ll discuss Dollar Tree’s sales in more detail.

Dollar Tree’s fourth-quarter adjusted EPS rose 2.1% to $1.93. Lower taxes more than offset the impact of weak sales. Analysts’ consensus EPS estimate was $1.92.

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Transforming Family Dollar banner stores

Dollar Tree is adopting a new store format called “H2” for new and renovated Family Dollar stores. The new model will have enhanced merchandise offerings, including Dollar Tree’s $1.00 merchandise. The company plans to renovate at least 1,000 Family Dollar stores, re-banner about 200 Family Dollar stores to the Dollar Tree banner, and close 390 underperforming Family Dollar stores in fiscal 2019. Dollar Tree also plans to add adult beverages in ~1,000 stores and install freezers and coolers in ~400 stores.

In fiscal 2018, Dollar Tree renovated 522 Family Dollar stores, re-bannered 52 stores to the Dollar Tree brand, and shut down 122 Family Dollar stores.

Dollar Tree recorded a goodwill impairment charge of $2.7 billion related to the Family Dollar brand in the fourth quarter. The impairment charge reflected how Family Dollar, acquired in 2015, has fallen short of the company’s expectations.

Analysts’ reaction  

On March 7, RBC Capital raised its target price for Dollar Tree stock to $110 from $109. Telsey Advisory Group revised its target price estimate to $103 from $90. Credit Suisse raised its target price to $110 from $105. Jefferies revised its target price to $94 from $87. Morgan Stanley raised its target price to $92 from $90, while Guggenheim raised its target price to $110 from $105.

As of March 7, Dollar Tree stock has risen 14.2% on a YTD (year-to-date) basis. Dollar General (DG) stock has risen 10.0%, while the S&P 500 has risen 9.7% on a YTD basis. As of March 7, the 12-month average price estimate for Dollar Tree stock was $106.29, which implies an upside of ~3.0%.

Next, we’ll discuss Dollar Tree’s sales.

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