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Dollar Tree: Telsey Advisory Upgraded the Stock

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Rating changes

On March 20, Telsey Advisory Group upgraded Dollar Tree (DLTR) stock to “outperform” from “market perform.” The target price increased to $117 from $103. Telsey Advisory Group upgraded its rating after a meeting with Dollar Tree’s management. Telsey Advisory Group got more clarity about the company’s efforts to improve its Family Dollar business.

Telsey Advisory Group expects Dollar Tree to return to earnings growth in the second half of fiscal 2019. Telsey Advisory Group expects Dollar Tree’s EPS growth to be 14%–18% in fiscal 2020. The double-digit growth is expected to continue in fiscal 2021.

On March 20, Evercore ISI initiated coverage of Dollar Tree with an “in line” rating and a target price of $105. On the same day, Evercore ISI also started coverage of Dollar General (DG) with an “underperform” rating and a target price of $100.

As of March 20, Dollar Tree stock has risen 12.2% on a year-to-date basis—compared to an 8.4% rise in Dollar General. Both of the stocks lag the S&P 500, which has risen 12.7% since the beginning of 2019.

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Growing optimism

On March 6, Dollar Tree announced its fourth-quarter results, which beat analysts’ expectations. The company also announced accelerated plans to improve its Family Dollar business. Several analysts raised their target price for Dollar Tree stock on March 7.

On March 11, UBS raised its target price for Dollar Tree stock to $120 from $105. As of March 20, the 12-month average target price for Dollar Tree stock was $108.48, which implies a potential rise of ~7%.

In fiscal 2019, Dollar Tree aims to renovate at least 1,000 Family Dollar locations, re-banner 200 Family Dollar stores to the Dollar Tree brand, and close 390 underperforming Family Dollar locations. Dollar Tree will adopt a new store model called “H2” for Family Dollar stores, which will have enhanced merchandise offerings including Dollar Tree’s $1.00 merchandise. Dollar Tree also plans to offer adult beverages in ~1,000 stores and install freezers and coolers in more locations.

As of March 20, 18 of 27 analysts covering Dollar Tree stock recommended a “buy.” Nine analysts recommended a “hold.”

Next, we’ll discuss analysts’ expectations for Dollar Tree for fiscal 2019.

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