On Thursday, Bernstein SocGen Group adjusted its outlook on Dollar Tree (NASDAQ:DLTR), raising the price target to $79.00 from the previous $71.00 while maintaining a Market Perform rating on the stock. The revision follows Dollar Tree's third-quarter performance, which exhibited stronger-than-expected top-line results with positive ticket growth for both of its retail banners. Despite this, the firm has decided to remain cautious due to ongoing uncertainties, particularly concerning the Family Dollar operations.
The analyst noted that while Dollar Tree's margins outperformed expectations, increased selling, general, and administrative expenses at the Dollar Tree banner slightly offset the bottom-line benefits. The recent announcement of leadership changes, including the vacancies in the CEO and CFO positions at Family Dollar, suggests that the situation could remain unstable for an extended period.
Bernstein SocGen Group acknowledges that although the potential sale or divestiture of Family Dollar could lead to immediate earnings per share accretion for Dollar Tree, the risk remains that Family Dollar could continue to underperform if a buyer is not found in the short term. This uncertainty has led to the firm's decision to maintain a neutral stance on Dollar Tree's stock.
In light of the third-quarter earnings, the firm has made adjustments to its future earnings per share (EPS) estimates for Dollar Tree. The forecast for fiscal year 2024 has been slightly reduced from $5.39 to $5.36 due to a weaker comparable sales outlook for the fourth quarter and expectations of fewer store openings.
Conversely, the EPS estimate for fiscal year 2025 has been increased from $6.21 to $6.28, reflecting an improved operating margin outlook and less margin pressure from the ongoing multi-price rollout than initially anticipated.
The increase in Dollar Tree's price target to $79.00 is a result of applying a higher multiple, from 10.8x to 11.5x, to reflect a more optimistic long-term margin outlook, as well as advancing the model by a quarter.
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