BMO downgrades Dollar Tree citing digital gaps and risks on margin

Investing.com -- BMO Capital Markets downgraded Dollar Tree to Underperform from Market Perform, saying the stock’s valuation and earnings expectations look stretched given risks around digital strategy and margin expansion.

Shares of the retailer were down 1.11% in premarket trading on Friday.

The brokerage cut its price target to $95 from a prior level based on a lower multiple, arguing that the retailer lacks sufficient investment and focus in e-commerce, digital tools and retail media.

Shares trade at about 19x consensus 2026 earnings, which assume 16% year-on-year growth. BMO called that valuation generous for a retailer facing execution and competitive risks, and now applies a 15x multiple to its below-consensus forecast for 12% earnings growth in fiscal 2027.

BMO said competitors are using those channels to drive faster sales growth and higher margins, while Dollar Tree remains reliant on its multi-price $3 to $5 food and consumables offering to support comparable sales growth of 3% to 4%.

BMO said that reliance could become more exposed in 2026 once the recent boost from tariff-related price increases fades.

The firm also flagged potential “dis-synergies” following the separation of the Dollar Tree and Family Dollar banners. It estimates the company plans to remove nearly $200 million in corporate overhead costs over two years.

While that appears conservative relative to prior cost allocations between the two banners, BMO noted that earlier disclosures pointed to roughly $450 million in deal synergies in 2018, equivalent to about $580 million today.

It said up to $200 million of those benefits were tied directly to the Dollar Tree banner, including procurement savings that could affect gross margins.

BMO said these factors raise the risk that Dollar Tree may struggle to reach its long-term goal of corporate overhead at 2% of sales and to deliver on margin expansion targets.

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