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Dollar Tree Inc.: The Family Dollar Turnaround & Other Drivers, Financial Forecasts, DCF & Comparables Valuation, ESG & Other Risks (06/22)
Dollar Tree delivered a decent quarterly result with a strong 40.6% gross profit margin, up nearly 700 basis points from the previous year's first quarter. Despite the inflationary environment, the company delivered a 20.2% operating margin, up more than 800 basis points. As they cycled the massive release of stimulus dollars last year, consumable comps were up 1.2% in the quarter, while discretionary comps were down 14.7%. Furthermore, the management anticipates a mid-single-digit increase in comparable store sales for the year, with a high-single-digit increase in the Dollar Tree segment. The Family Dollar segment continues its growth struggles and the management guidance indicates a more or less flat comparable-store sales for segment. The sale of square footage is expected to increase by 3.9% and based on a low to mid-single-digit increase in same-store sales for the enterprise, Dollar Tree expects consolidated net sales to range from $6.65 billion to $6.78 billion in the coming quarter. We give their stock a 'Hold' rating with a revised target price. Baptista Research looks to evaluate the different factors that could influence the company's price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology. In this report, we have carried out a fundamental analysis of the historical financial statements of the company. We also have a dedicated analysis of the company's Environmental, Social, and Governance (ESG) risk scores in order to evaluate the sustainability risk. We have added reasonable forecasts of the annualized income statement and cash flows and carried out a DCF valuation of the company using its Weighted Average Cost of Capital (WACC) to determine a forecasted share price.
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