We have initiated coverage on
Dollar Tree Inc.
) with a Neutral recommendation and a target price of $57 per
share. Moreover, our Neutral stance is seconded by a Zacks Rank
#3 (Hold) for the stock.
Dollar Tree is one of the best-positioned dollar store concepts,
especially with its evolving multi-price point chain. In order to
enhance its market share, the company is transforming itself by
building larger stores to accommodate more consumables/basic
Moreover, we believe that the company's sustained focus on
price management, cost containment, inventory management, product
mix offering and merchandise initiatives will boost its sales and
We believe that the company is progressing well with its growth
endeavors, which include store expansion strategies, omni-channel
initiatives, revamping of store formats and venture into new
markets. Moreover, we commend Dollar Tree's strategic investments
toward incorporating technological enhancements, which will drive
its top and bottom line in the long run.
Dollar Tree has been displaying fabulous comparable-store sales
growth despite unfavorable macroeconomic conditions mainly due to
competitive pricing and strategic store expansion plans,
including remodeling and relocations. Fiscal 2012 represented the
7th consecutive year of comparable-store sales growth.
So far in fiscal 2013, the company has posted 2.1%, 3.7% and
3.1% comps growth for the first, second and third quarters,
respectively. For fiscal 2013, Dollar Tree expects comps to
increase in the low-single digit range.
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Further, Dollar Tree's accelerated share repurchase program
reflects management's confidence in the business and consistency
of its cash flow generation ability.
However, we hold back our positive view on the stock due to the
disappointing fiscal 2013 results as earnings per share and sales
fell short of the Zacks Consensus Estimate, while margins
remained under pressure due to higher operating expenses from
ongoing investments to strengthen its omni-channel selling
Moreover, the stock remains susceptible to the sluggish economic
recovery and cautious consumer spending. This has also been
reflected in management's sales and earnings guidance for fiscal
2013. This, in turn, triggered a downtrend in the Zacks Consensus
Estimate for the fourth quarter and fiscal 2013, as analysts have
become less constructive on the stock's future performance.
Other Stocks to Consider
Better-ranked stocks in the retail space include
Christopher & Banks Corp.
Finish Line Inc.
Abercrombie & Fitch Co.
). Of these, Christopher & Banks has a Zacks Rank #1 (Strong
Buy), while Finish Line and Abercrombie & Fitch carry a Zacks
Rank #2 (Buy).