NEW YORK (TheStreet) -- Credit Suisse downgraded Dollar Tree (DLTR) - Get Dollar Tree, Inc. Report to "underperform" from "neutral" on Thursday, lowering its price target for the discount retailer to $60 from $70.
Shares of Dollar Tree were falling 1.5% to $66.92 in pre-market trading.
The analyst firm lowered its fiscal 2016 EPS estimates for the company to $2.80 a share from its previous estimate of $2.88 a share. Credit Suisse analysts also lowered their fiscal 2017 and 2018 EPS estimates for Dollar Tree to $3.48 and $4.38 a share from $3.90 and $4.70 a share, respectively.
Credit Suisse analysts said they remain cautious about Dollar Tree's acquisition of Family Dollar (FDO) due to concerns about execution risk, Dollar Tree management's ability to "turn around this perennially poor performing asset," and the overall strategic fit.
"While the stock has pulled back recently on disappointing FDO results and slowing core DLTR momentum, we believe further downside is likely," Credit Suisse analysts wrote. "Our proprietary earnings bridge highlights more earnings risk. While challenges in modeling the combined company may be partly to blame for high consensus estimates, we also believe the street may be underestimating the possible investment needed at FDO to improve longer-term results."
Separately, TheStreet Ratings team rates DOLLAR TREE INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
"We rate DOLLAR TREE INC (DLTR) a HOLD. The primary factors that have impacted our rating are mixed – some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth greatly exceeded the industry average of 7.6%. Since the same quarter one year prior, revenues rose by 48.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
- DOLLAR TREE INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, DOLLAR TREE INC increased its bottom line by earning $2.90 versus $2.75 in the prior year. For the next year, the market is expecting a contraction of 0.7% in earnings ($2.88 versus $2.90).
- The gross profit margin for DOLLAR TREE INC is currently lower than what is desirable, coming in at 31.37%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -3.25% trails that of the industry average.
- Net operating cash flow has significantly decreased to -$175.50 million or 205.02% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full analysis from the report here: DLTR Ratings Report