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Dollar Tree (DLTR) Looks Solid: What is Driving the Stock?

Zacks Equity Research

A prudent investor takes advantage of stocks which appear promising at the right juncture. Hence, we suggest investing in Dollar Tree, Inc. DLTR, which has seen its stock price surge 22.3% on a year-to-date basis.

DOLLAR TREE INC Price and Consensus

DOLLAR TREE INC Price and Consensus | DOLLAR TREE INC Quote

Driving Factors

Dollar Tree has been performing well on the back of its long-term strategies and growth initiatives including store expansion and productivity enhancement, tapping of new markets and incorporation of innovative sales channels, to serve its patrons better.

Also, the company’s strategy of increasing consumables mix, rolling out freezers/coolers at stores, along with multi-price point expansion bodes well for top-line growth. Further, in order to improve operating margin, the company is focusing on imported goods, supply chain efficiency and aggressive cost cuts.

Moving to Dollar Tree’s idea of attaining growth via acquisitions, we believe that it has hit the bull’s eye by acquiring Family Dollar. The giant arising from the combination of these two companies will be strong enough to single-handedly counter competition from retail bellwethers in the dollar-discount store segment.

The combined chain is also likely to be in a better position to reach out to more value-seeking consumers through a network spanning across vast geographies. Furthermore, the acquisition will enhance the purchasing power of the pair, providing better negotiating terms with suppliers. Moreover, the merger will help in achieving operational and distributional efficiencies as well as cost synergies.

Dollar Tree is well on track with Family Dollar’s integration and expects to generate annual run rate synergies worth at least $300 million by the end of the third year of this acquisition.

Backed by its growth drivers, the company has displayed a remarkable comparable-store sales (comps) performance. Notably, Dollar Tree has posted positive comps for 33 straight quarters now, mainly due to competitive pricing and its strategic store expansion plans, including remodeling and relocations. Going forward, this Zacks Rank #2 (Buy) company expects comps to increase in a low single-digit range in fiscal 2016.

We believe that all these factors speak positively about Dollar Tree’s future prospects, instilling confidence among investors. Thus, we believe that it is the right time to take advantage of the company’s bull-run.

Other Stocks to Consider

Other well-ranked stocks worth considering in the same industry include Burlington Stores, Inc. BURL, Dollar General Corporation DG and Tuesday Morning Corporation TUES, each with a Zacks Rank #2.

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DOLLAR TREE INC (DLTR): Free Stock Analysis Report
 
DOLLAR GENERAL (DG): Free Stock Analysis Report
 
TUESDAY MORNING (TUES): Free Stock Analysis Report
 
BURLINGTON STRS (BURL): Free Stock Analysis Report
 
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