Dollar Tree’s Stock Sell-Off Overdone? Analysts Raise, But Outlook Mixed

Dollar Tree's stock (NASDAQ: DLTR) is trading up by 2% in this morning's pre-market, following a sharp sell-off yesterday that saw the price end down 8.37% after earnings.

Today's bounce is following the lead from analysts, who have come in thick and fast today with upward revisions.

JPMorgan upgraded Dollar Tree to Overweight from Neutral, setting a price target of $111, a substantial increase from their previous target of $72. This upgrade was fueled by the company's better-than-expected Q1 same-store-sales, which demonstrated balanced ticket and traffic composition. The firm viewed the post-earnings selloff as an opportunity to be bought.

Joining them this morning are Morgan Stanley (raised from $80 to $96, Equal Weight), Piper Sandler ($93 from $73, Neutral), BMO Capital ($85 from $80, Market Perform), Evercore ISI ($92 from $85, ‘In Line'), and Truist ($109 from $100, Buy); all seeing the need to revise to the upside.

Whilst Wells Fargo remained unchanged in their Overweight rating and $105 target, the firm indicated DLTR should be bought on weakness, seeing continued momentum and earnings power.

A key strategic shift influencing these analyst perspectives is Dollar Tree's decision to sell its Family Dollar business segment for approximately $1.007 billion. This move, aimed at allowing management to focus on the core Dollar Tree brand and its multi-price point store remodels, has been largely viewed as positive.

However, the success of this strategy hinges on Dollar Tree's ability to effectively execute its remodel plans and navigate the competitive landscape. Enhanced execution is crucial, especially given persistent inflation and competition from retail giants like Amazon, Walmart, and Aldi. These external pressures add another layer of complexity to Dollar Tree’s challenges.

A wave of analyst upgrades have come in, yet the view continues to remain mixed. The majority is leaning toward ‘hold' or equivalent ratings, indicating that while the picture around DLTR is improving, there is not expected to be meaningful outperformance against the sector, or broader markets. Nevertheless, bulls will be much happier reading analysts views this morning than post earnings.