The firm cited Dollar Tree's acquisition of Family Dollar Stores (FDO) which was completed in early July. Cantor Fitzgerald believes the synergies are not fully priced in the stock, but the firm is taking a more conservative view on expenses in the integration.
Dollar Tree shares declined 13% since second quarter of 2015 results were reported on September 1. Cantor Fitzgerald believes this pullback is overdone and that the acquisition is a "game changer" in the industry.
"We continue to think there is considerable upside to the $300 million in annual cost savings Dollar Tree expects to generate by year three, specifically through operational improvements at Family Dollar Store," the firm said in a note.
Shares of Dollar Tree were down 0.02% to $66.05 in early morning trading on Friday.
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