On Thursday, BMO Capital adjusted its outlook on Dollar Tree (NASDAQ:DLTR) shares, reducing the price target from the previous $150.00 to $145.00. The firm maintained its Outperform rating on the stock.
The revision follows Dollar Tree's earnings per share (EPS) announcement, which met expectations but did not alleviate concerns over weaker-than-anticipated comparable sales (comps) at the Dollar Tree banner stores.
The company's stock faced downward pressure, attributed to the guidance suggesting a need for significant second-half comp acceleration at a time when investors are particularly attentive to the Dollar Tree banner's performance.
This heightened scrutiny is due to the management's recent announcement considering a potential sale or spin-off of the Family Dollar segment.
BMO Capital's decision to lower the price target is based on the projection of increased distribution center costs affecting 2024 EPS, and a more conservative estimate of comps for the years 2025 and 2026.
Despite these adjustments, BMO Capital continues to recommend Dollar Tree as an Outperform, emphasizing a favorable risk/reward balance for the stock.
The firm's analyst cited a 19x multiple on the revised lower 2025 estimated EPS of $7.65 as the basis for the new price target. The report suggests that while near-term costs and conservative comp expectations have led to a modest decrease in the price target, the overall outlook for Dollar Tree remains positive.
InvestingPro Insights
Following BMO Capital's updated outlook on Dollar Tree (NASDAQ:DLTR), current metrics and InvestingPro Tips provide additional context for investors. The market capitalization of Dollar Tree stands at $24.59 billion, with a forward-looking P/E ratio of 22.53, reflecting expectations of profitability in the near future. Gross profit margins have remained strong over the last twelve months as of Q1 2023, at 30.85%, indicating the company's ability to maintain profitability in its operations.
InvestingPro Tips suggest that while analysts have recently revised their earnings downwards for the upcoming period, they also predict the company will be profitable this year. Additionally, Dollar Tree's cash flows can sufficiently cover interest payments, and the company’s liquid assets exceed short-term obligations, providing a degree of financial stability.
Investors should note that the price has seen a significant drop over the last three months, which may influence the risk/reward balance highlighted by BMO Capital. For a deeper dive into Dollar Tree's performance and potential, there are additional InvestingPro Tips available at https://www.investing.com/pro/DLTR. To access these insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 7 more InvestingPro Tips listed in InvestingPro that could further inform investment decisions regarding Dollar Tree.
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