NEW YORK (TheStreet) -- Dollar Tree (DLTR) - Get Report shares are rallying 2.29% to $75.79 on Friday after RBC Capital Markets this morning boosted the company's ratings to "top pick" from "outperform" and raised its price target to $90 from $88.
The firm cited "tremendous 'self help' capabilities and earnings power."
Dollar Tree acquired discount store operator Family Dollar (FDO) in July and analysts are bullish on this combination.
It appears that moving forward, Dollar Tree has the ability to deliver the highest earnings growth in the firm's coverage over the next few years.
Based in Chesapeake, VA, Dollar Tree operates discount variety stores that sell items at the fixed price of $1.
Separately, TheStreet Ratings team rates DOLLAR TREE INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:
We rate DOLLAR TREE INC (DLTR) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth and solid stock price performance. We feel its strengths outweigh the fact that the company has had sub par growth in net income.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- DLTR's very impressive revenue growth greatly exceeded the industry average of 12.6%. Since the same quarter one year prior, revenues leaped by 136.0%. 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. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
- DOLLAR TREE INC's earnings per share declined by 45.3% in the most recent quarter compared to 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 6.9% in earnings ($2.70 versus $2.90).
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Multiline Retail industry. The net income has significantly decreased by 38.4% when compared to the same quarter one year ago, falling from $133.00 million to $81.90 million.
- The debt-to-equity ratio is very high at 2.01 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, DLTR has a quick ratio of 0.51, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- You can view the full analysis from the report here: DLTR