Tuesday, Guggenheim maintained a positive stance on Dollar Tree (NASDAQ:DLTR), raising its price target to $170.00 from the previous $155.00 while keeping a Buy rating on the stock. The firm believes Dollar Tree is well-positioned within the retail sector despite a challenging operating environment.
The price target increase reflects an anticipated recovery in ocean freight expenses and a projected lift in average unit retail (AUR) at the Dollar Tree segment, which is expected to contribute to robust low-double-digit earnings before interest, taxes, depreciation, and amortization (EBITDA) growth.
The analyst noted that around $300 million of ocean freight expense recovery and a 4-5% AUR increase at Dollar Tree should lead to visible and above-average EBITDA growth. The early-stage turnaround of Family Dollar (FDO), which accounts for approximately 20% of EBITDA, is seen as a near-term risk. However, the analyst suggests that accelerating store closures will demonstrate to investors that it will not become a financial burden.
In their commentary, the firm mentioned few surprises are anticipated in the fourth-quarter earnings report, with expectations aligning with guidance midpoints and an initial 2024 earnings per share (EPS) outlook that is predicted to meet or exceed $7.00. Guggenheim has adjusted its fourth-quarter earnings estimate to $2.68 and its 2024 forecast to $7.05. The new price target implies an approximate 16% upside from the current levels.
The update comes as Dollar Tree continues to navigate the retail landscape, which has been impacted by various economic pressures. The company's efforts to mitigate risks associated with the Family Dollar segment and capitalize on growth opportunities have been highlighted by Guggenheim as reasons for their continued endorsement of the stock with a Buy rating.
InvestingPro Insights
As Guggenheim reiterates its confidence in Dollar Tree (NASDAQ:DLTR) with a revised price target, InvestingPro data provides a deeper dive into the company's financial health and market performance. The market capitalization of Dollar Tree stands at a robust $31.9 billion, indicating its significant presence in the retail sector. The company's P/E ratio, a measure of its current share price relative to its per-share earnings, is currently at 27.73, suggesting that investors are willing to pay a higher price for earnings growth potential.
Dollar Tree's revenue growth over the last twelve months as of Q3 2024 has been positive, showing a 7.2% increase, which may support Guggenheim's outlook on the company's ability to achieve robust EBITDA growth. Furthermore, the company's gross profit margin during this period is at a healthy 30.13%, indicating that Dollar Tree has been effective in managing its cost of goods sold and maintaining profitability.
An InvestingPro Tip highlights that analysts predict Dollar Tree will be profitable this year, aligning with Guggenheim's positive earnings forecast. Additionally, the company's liquid assets exceed its short-term obligations, providing a cushion for operational flexibility and financial stability. For investors seeking more comprehensive analysis, there are 6 additional InvestingPro Tips available, offering insights into factors such as cash flow management and price trends over the last six months. To access these insights, visit the InvestingPro platform and use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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