How Will Dollar Tree (DLTR) Stock React To This Coverage Initiation?

NEW YORK (TheStreet) -- Dollar Tree (DLTR) shares had coverage initiated with a "buy" rating and $68 price target by analysts at UBS (UBS) , which made a valuation call on the stock on Friday.

The price target represents a 22% upside from the stock's previous closing price of $55.68.

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TheStreet Ratings team rates DOLLAR TREE INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate DOLLAR TREE INC (DLTR) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, notable return on equity, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 7.5%. Since the same quarter one year prior, revenues slightly increased by 9.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • DOLLAR TREE INC has improved earnings per share by 5.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, DOLLAR TREE INC increased its bottom line by earning $2.75 versus $2.70 in the prior year. This year, the market expects an improvement in earnings ($3.05 versus $2.75).
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Multiline Retail industry and the overall market, DOLLAR TREE INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The current debt-to-equity ratio, 0.52, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that DLTR's debt-to-equity ratio is low, the quick ratio, which is currently 0.60, displays a potential problem in covering short-term cash needs.
  • 36.63% is the gross profit margin for DOLLAR TREE INC which we consider to be strong. Regardless of DLTR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DLTR's net profit margin of 5.97% compares favorably to the industry average.
  • You can view the full analysis from the report here: DLTR Ratings Report

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