Dollar Tree (DLTR) PT Bumped Higher at Piper Jaffray, Remains Sidelined

Piper Jaffray analyst, Peter Keith, raised his PT on Dollar Tree (NASDAQ: DLTR) to $73 (from $70) after Q3 results on a change of his price target methodology. Far from being a perfect quarter, results weren't as bad as feared.and a shift to EBITDA valuation rather than EPS valuation. The firm maintained a Neutral rating.

EPS & EBITDA Miss Estimates. Adjusted EPS of $0.49 missed consensus of $0.53 but because of the wide number of charges and a low tax rate during the quarter, EBITDA could be a better assessment of Q3 performance. In this case, adj. EBITDA of $442M was also below consensus of $461M.

Total revenue of $4.95B was slightly better than expectations. Even though the DLTR comp of 1.7% was below consensus of 2.0% it was not as bad as feared.

Mgmt continues to expect $300M in FDO runrate synergies in 3 years and will now be disappointed if this estimate is not exceeded. After rebannering 147 FDO stores to DLTR as of the end of Q3, mgmt now expects to rebanner 200 FDO stores for full year. Inventory clearance has gone well at FDO, and stores are now better set for holiday seasonal merchandise. With the inventory reduction out of the way, mgmt expects FDO OPM to climb back to historical 7%-8% range over time (vs. ~4% at the time of acquisition).

The new $73 PT is based on 10x 2016E EBITDA of $2.5B. The analyst believes his 10x multiple is appropriate given the growth prospects and potential synergy realization as Dollar Tree continues to digest Family Dollar.

For an analyst ratings summary and ratings history on Dollar Tree click here. For more ratings news on Dollar Tree click here.

Shares of Dollar Tree closed at $74.16 yesterday.

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