Can Dollar Tree's 4Q15 Earnings Justify Its High Valuation?
Compared with peers’ stock, Dollar Tree (DLTR) stock has provided the highest returns over the last three years, growing almost by 90.0% in price. This was primarily driven by the acquisition of Family Dollar at the end of 2014. The company does not have a history of providing dividends and it is not likely to provide them over the short term as most of its operating cash flow will be used for capital expenditures and to pay off debt.
Close peers Dollar General (DG) and Walmart (WMT) had total returns of 58.3% and -1.0%, respectively, over the same period, as can be seen in the chart above. Dollar Tree (DLTR) has beaten the broad consumer discretionary sector (XLY) as well as the broad market index (SPY) by quite a margin.
Wall Street says “buy”
50.0% of Wall Street analysts covering Dollar Tree’s (DLTR) stock have given a “buy” recommendation. 11 analysts gave a “hold” recommendation and 1 analyst gave it a “sell” recommendation. These recommendations are from analysts from investment companies such as Goldman Sachs, Wells Fargo Securities, and RBC Capital Markets.
The average 12-month target price of the company is $85.72, which would mean the stock could return 7.9% in the next 12 months. In the next article, we’ll have a look at how the company stands against its peers in terms of valuation multiples.
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