Last Update29 Jul 25Fair value Increased 12%
Dollar Tree’s consensus price target was raised from $89.51 to $100.35 following strong Q1 comp sales growth, raised EPS guidance, and confident management commentary offsetting tariff and cost pressures with mitigation strategies.
Analyst Commentary
- Strong Q1 results with notable comp sales growth (~5%) driven by both store traffic and average ticket, providing evidence of successful merchandising and market share gains.
- Management raised EPS guidance, partly due to increased share repurchases and confidence in second-half profitability acceleration.
- Tariff headwinds and inflationary pressures remain a central concern, but mitigation strategies including pricing actions are expected to largely offset these impacts and keep fiscal year tariff effects neutral.
- Guidance for Q2 EPS was reduced due to temporary cost pressures (tariffs, labor), though analysts expect recovery in the back half of the year via operational strategies and cost control.
- Ongoing uncertainty persists regarding the longer-term effectiveness of tariff mitigation and overall execution, especially concerning merchandise quality and broader geopolitical risks.
What's in the News
- Increased equity buyback authorization to $2.5 billion.
- Amended by-laws to decrease the number of directors from 12 to 11.
- Provided Q2 2025 sales guidance at the higher end of 3% to 5% full-year outlook; reiterated full-year net sales guidance of $18.5–$19.1 billion.
- Repurchased 6.7 million shares for $500 million in the recent tranche; 21.6% of shares repurchased since 2013 under ongoing buyback.
- Surpassed 9,000 stores milestone and announced partnership with Arbor Day Foundation to plant 9,000 trees across North America.
Valuation Changes
Summary of Valuation Changes for Dollar Tree
- The Consensus Analyst Price Target has significantly risen from $89.51 to $100.35.
- The Future P/E for Dollar Tree remained effectively unchanged, moving only marginally from 16.80x to 17.09x.
- The Discount Rate for Dollar Tree remained effectively unchanged, moving only marginally from 7.00% to 6.90%.
Key Takeaways
- The Family Dollar sale will streamline operations, potentially improving revenues and net margins through a focus on core business activities.
- Expanded multi-price assortments and store format changes could drive higher sales, improving customer basket size and positively impacting earnings.
- Transition and strategic challenges like tariff exposure, rising costs, and pricing strategies may impact Dollar Tree's margins and revenue growth trajectory.
Catalysts
About Dollar Tree- Operates retail discount stores.
- The sale of Family Dollar will allow Dollar Tree to focus on its core business, potentially improving revenue and net margins by streamlining operations and reducing complexity.
- The expanded multi-price assortment, especially in the 3.0 format stores, could drive higher sales and improve earnings due to an increased size of customer baskets.
- Targeted conversions of additional Dollar Tree stores to the 3.0 format are expected to drive further sales and revenue growth as customers continue to respond positively to the expanded assortment.
- Efficiency improvements in the supply chain, including tariff mitigations and navigating product sourcing, are expected to stabilize gross margins and protect earnings.
- Strong anticipated cash flow and potential share repurchases following the Family Dollar sale could positively impact earnings per share (EPS) by reducing the share count and enhancing shareholder value.
Dollar Tree Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Dollar Tree's revenue will grow by 6.3% annually over the next 3 years.
- Analysts assume that profit margins will increase from 5.9% today to 6.3% in 3 years time.
- Analysts expect earnings to reach $1.3 billion (and earnings per share of $6.64) by about May 2028, up from $1.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.5 billion in earnings, and the most bearish expecting $1.1 billion.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.8x on those 2028 earnings, down from 17.3x today. This future PE is lower than the current PE for the US Consumer Retailing industry at 25.0x.
- Analysts expect the number of shares outstanding to grow by 0.06% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 7.0%, as per the Simply Wall St company report.
Dollar Tree Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- The sale of Family Dollar leads to a transitional year with burdened corporate shared services costs and a gradual handover of expenses, potentially impacting net margins.
- Continued exposure to potential additional tariffs and uncertainties in mitigation efforts may strain cost structures and influence earnings.
- The growing SG&A costs driven by IT upgrades, payroll, and distribution expenses might outweigh gross margin improvements, affecting net margins.
- Challenges in executing multi-price store conversions without significantly affecting customer experience and performance could hinder expected revenue boosts.
- The economic landscape requires balancing pricing strategies amid inflationary pressures and consumer price sensitivity, which could impact the trajectory of revenue growth and net margins.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $84.783 for Dollar Tree based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $103.22, and the most bearish reporting a price target of just $70.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $21.1 billion, earnings will come to $1.3 billion, and it would be trading on a PE ratio of 16.8x, assuming you use a discount rate of 7.0%.
- Given the current share price of $83.79, the analyst price target of $84.78 is 1.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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