Discount retail superstar Dollar Tree (NASDAQ:DLTR) slipped as much as 1.3% in premarket trading, and its decline continued into this morning's trading session. The biggest hit to the company followed a downgrade from analysts at Piper Sandler. The downgrade seems to be part of a larger trend as well, as analyst sentiment has declined in the last month to a “hold”.
Piper Sandler Downgrade Considers Dollar Tree's Position
Piper Sandler analyst Peter Keith set up the downgrade, sending Dollar Tree down from “overweight” to “neutral.” The biggest reason for Dollar Tree's downgrade, Keith's note to clients asserted, is the combined impact of an ongoing labor shortage and increasing freight costs, which will make it difficult for Dollar Tree to maintain its previous performance going forward.
While Dollar Tree has an excellent position as a discount retailer, the ongoing labor shortage and increasing freight costs are likely to hurt the company's profitability. Since Dollar Tree's focus is providing discount goods to customers, it's not in a position to pass much—if any—of those costs on to customers. With retailers all over offering wage increases and special benefits to draw labor, Dollar Tree is in a poor position to meet or exceed such offers, leaving it likely to suffer the worst effects of a labor shortage.
Issues over rising freight costs, meanwhile, have been impacting the company for weeks now. After Dollar Tree released its earnings report back in May, the company also offered warning about the potential impact of freight costs going forward. The issues of rising freight costs already overshadowed the company's last earnings report, though it still proved at least a winner. The company brought in $1.60 in earnings against an expected $1.42, and revenue saw a 3% rise, hitting $6.48 billion. Analysts were looking for $6.42 billion in revenue.
What Are Financial Analysts Saying About the Dollar Tree Stock Forecast?
The Dollar Tree stock forecast was looking bright among financial analysts, but projections have turned increasingly bearish. Until just last month, the company carried a consensus rating of “buy”, but the analyst picture turned and now the company carries a consensus rating of “hold”.
A year ago, the picture was much different for Dollar Tree. Back then, it had 15 “buy” ratings, along with eight “hold” and one “sell.” Six months ago, the picture was similar, as it had 13 “buy” ratings, seven “hold” and one “sell.” Today, however, it's a much different story: the company currently has nine “buy” ratings, along with seven “hold” and one “sell.” The “buy” interest has been in visible decline for the last year.
The Dollar Tree price target, meanwhile, occupies a very narrow range. The current average target is $119.36, with a high of $134 and a low of $105. Even the low target, however, represents upside potential as Dollar Tree stock was seen hovering in the $99 to $100 range for much of early trading today.
Recent developments for Dollar Tree have not been positive. The last time an analyst raised a price target on Dollar General was back in February, when JPMorgan Chase & Co. raised the target from $130 to $134. The Piper Sandler downgrade was just the latest in a string of reversals; Bank of America already downgraded the company from “buy” to “underperform” back in late February, and in the meantime, four different analysts lowered their price targets on the company.
Less formal Dollar Tree stock analysis is also telling. The all-time high for hedge funds that held Dollar Tree was 65, reports noted, and as of the start of 2021's second quarter, that number dropped to 41. Long hedge fund bets on Dollar Tree have dropped by 12 as well. Moreover, insider selling has also been spotted; just on Monday, insider Richard L. Mcneely sold 7,635 shares of Dollar Tree valued at a combined total of $772,356.60. That's actually the bulk of his holdings; reports note Mcneely has just 497 shares of Dollar Tree left.
Companies in This Article:
