Dollar Stores: Upgrade DLTR to O/W
The strength of the legacy Dollar Tree banner has been overwhelmed by short term, renewed investor concerns over the Family Dollar business. The former remains a high-quality, differentiated business, delivering healthy comp and new store growth. The Family Dollar segment was beset by execution issues and underinvestment prior to its 2015 acquisition. Improvement is evident but external factors impacted the FDO Q1 results which, in turn, have created an extremely timely entry point into DLTR's stock. We see an $82 valuation for core Dollar Tree, implying a sub-10x P/E on the Family Dollar operations. An aggressive, industry-wide promotional backdrop has masked progress at FDO and we are confident that Q1 was merely a pause in sequential improvement as management’s initiatives gain traction. We expect an inflection in sentiment and raise our rating to O/W with a $110 PT.Dollar General is a discount retailer. The company's consumables products includes paper and cleaning products, packaged food, perishables, snacks, health and beauty, pet, and tobacco products. The company's seasonal products include decorations, toys, batteries, small electronics, greeting cards, stationery, prepaid phones and accessories, gardening supplies, hardware, automotive and home office supplies. The company's home products include kitchen supplies, cookware, small appliances, light bulbs, storage containers, frames, candles, craft supplies and kitchen, bed and bath soft goods. The company's apparel includes casual everyday apparel, as well as socks, underwear, disposable diapers, shoes and accessories.
Dollar Tree is an operator of discount variety stores. The company's stores operate under the names of Dollar Tree, Family Dollar and Dollar Tree Canada. The company's segments are: Dollar Tree, which is the operator of discount variety stores providing merchandise at the fixed price point of $1.00; and Family Dollar, which operates general merchandise discount retail stores. The merchandise mix in the company's Dollar Tree stores consists of consumable merchandise, variety merchandise, and seasonal goods. The merchandise mix in the company's Family Dollar stores consists of consumable merchandise, home products, apparel and accessories merchandise, and seasonal and electronics merchandise.
Formed in 2003 by an established team from Cazenove, one of the most respected investment banks in the UK, Atlantic Equities conducts and publishes fundamental, bottom up research on mid and large cap US companies.
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