Update: Dollar Tree shares have experienced a volatile sell-off in September, but they appear to have reached a low and have been rallying in recent weeks. Goldman Sachs sees further upside potential, leading to expected gains.
Report: Dollar Tree, once considered one of the best stocks to own during a recession, has been on the defensive since the summer. After a poor end to the summer, the company’s shares dropped more than 30% into October, bringing them back to 2017 trading levels. Despite beating expectations in their earnings report, Dollar Tree’s margins plummeted, resulting in management issuing lower forward guidance than analysts had anticipated.
New Findings: Goldman Sachs recently upgraded their rating on Dollar Tree shares from Neutral to Buy. They believe that the doom and gloom scenario that spooked investors was overdone, and that a sharp recovery can be expected. Goldman Sachs sees Dollar Tree continuing to capture market share, supported by improving traffic trends and a loyal customer base. They also expect an improving discretionary cash flow outlook for lower and middle-income consumers, which will further support the company’s earnings. With these factors in play, Goldman Sachs predicts annual earnings growth of 19% through 2026, surpassing their peer group. Additionally, a new price target of $137, implying a 20% upside, has been set.
The upcoming earnings report in November will play a significant role in determining the stock’s broader trend. Analysts will closely observe the recovery in Dollar Tree’s margins and an uptick in revenue. Despite the current trading levels being similar to 2017, the company’s revenue has significantly increased. With Goldman Sachs now in favor of Dollar Tree, a continued rally in November is expected. Investors may consider getting involved at this interesting time, taking into account the option to secure some gains before the report while still holding some shares in case of a significant upside surprise.
