On Monday, Wells Fargo made a bullish move on Dollar Tree (NASDAQ:DLTR) by raising its price target to $180 from the previous $160, while maintaining an Overweight rating on the stock.
The firm expressed a positive outlook on the company's growth potential, particularly highlighting the expansion of price points at Dollar Tree stores as a key driver for sustained growth.
The analyst from Wells Fargo indicated that the new price points introduced by Dollar Tree have revitalized the brand, suggesting that there is significant room for further upside.
The expectation is for these initiatives to contribute to long-term low single-digit to mid-single-digit comparable store sales growth, potentially exceeding the company's margin target of 14-15%, and to support the acceleration of new store openings.
Despite challenges faced by Family Dollar, another banner operated by Dollar Tree, the analyst remains optimistic. The report suggests that it's premature to dismiss Family Dollar's potential for value creation.
The analyst projects that Dollar Tree's earnings per share could reach over $10 by 2026, and even if Family Dollar continues to face issues, the core Dollar Tree brand could compensate for some of the shortfall.
In terms of valuation, Wells Fargo estimates that the Dollar Tree banner on its own could be worth between $160 and $170 per share today, with the possibility of further value appreciation in the future. The assessment of Family Dollar's minimum fair value stands at $10 to $20 per share.
The revised price target of $180 is based on 25 times the firm's estimated earnings per share for 2024 and aligns with the midpoint of their sum-of-the-parts valuation. The analyst's forecast for the 12-month risk/reward range for Dollar Tree is estimated to be between $130 and $215.
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