Wells Fargo (NYSE:WFC) has made an adjustment to Dollar Tree's (NASDAQ: NASDAQ:DLTR) financial outlook, reducing the price target on the company's shares to $100 from the previous target of $130.
Despite this change, the firm maintained its Overweight rating on the discount retailer's stock.
The adjustment followed a recent evaluation of the company's stock performance in light of current market conditions. The Wells Fargo analyst expressed disappointment with the stock's current level, noting that it was unexpected given the pre-existing concerns and the fact that the incremental disappointment appeared to be less related to fundamental issues.
The analyst pointed out that the stock seemed undervalued, trading at approximately 12 times the midpoint of the new 2024 earnings per share (EPS) guidance.
The firm remains positive about Dollar Tree's prospects, citing potential benefits from the company's multi-price point strategy and the ongoing review of its Family Dollar operations. Despite the challenges and the reduction in the price target, Wells Fargo's stance reflects a belief in the favorable risk/reward balance for the stock.
In other recent news, BofA Securities, Evercore ISI, and BMO Capital Markets have all adjusted their outlooks on the company. BofA Securities and Evercore ISI have reduced their price targets for Dollar Tree to $70.00 and $78.00 respectively, while maintaining their Underperform and In Line ratings.
BMO Capital Markets downgraded Dollar Tree's stock from Outperform to Market Perform and also significantly reduced the price target to $68.00.
These revisions follow Dollar Tree's second-quarter earnings report, which revealed a 0.7% increase in net sales to $7.4 billion, with comparable store sales slightly rising by 1.3% at Dollar Tree and declining by 0.1% at Family Dollar. Additionally, the company reported adjusted operating income falling by 13% to $344 million, with Family Dollar posting an adjusted operating loss of $3.6 million.
The lowered earnings per share (EPS) forecast for fiscal year 2025/calendar year 2024 by BofA Securities, now set at $5.40, reflects not only the weaker sales forecast but also the anticipated impacts of higher initial costs from the acquisition of 99 Cents Only stores. Dollar Tree is also expected to incur higher depreciation and amortization expenses due to elevated project costs, projected to negatively impact the company's EPS by $0.12.
InvestingPro Insights
In light of Wells Fargo's recent adjustment to Dollar Tree's financial outlook, InvestingPro data and tips offer additional insights into the company's performance and stock valuation. According to InvestingPro data, Dollar Tree has a market capitalization of $13.66 billion and is currently trading with a forward P/E ratio for the last twelve months as of Q1 2025 at 12.79. This aligns with the Wells Fargo analyst's note on the stock trading at approximately 12 times the midpoint of the new 2024 EPS guidance. The company's revenue growth for the last twelve months as of Q1 2025 stands at 7.51%, suggesting a healthy top-line expansion.
One of the InvestingPro Tips highlights that management has been aggressively buying back shares, which could be indicative of the company's confidence in its own stock and future prospects. Additionally, analysts predict that Dollar Tree will be profitable this year, supporting the positive sentiment around the company's potential to rebound from any recent setbacks. It's worth noting that these insights are part of a broader range of tips available on InvestingPro, with a total of 14 additional tips listed for Dollar Tree, providing a comprehensive perspective for investors.
The InvestingPro Fair Value estimate for Dollar Tree stands at $94.88, which suggests that the stock might be undervalued at its previous close price of $63.56. This aligns with the Wells Fargo analyst's view that the stock seems undervalued and offers a favorable risk/reward balance. Investors can find more in-depth analysis and tips on Dollar Tree by visiting https://www.investing.com/pro/DLTR.
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