Why Wall Street Now Favors Dollar General Over Dollar Tree

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Dollar Tree Inc. (NASDAQ: DLTR) and Dollar General Corp. (NYSE: DG) each reported earnings this past week. While both may have taken a turn for the worse, there was a clear winner out of the two. Analysts seemed to think so as well.

24/7 Wall St. has included some highlights from the earnings reports, as well as what analysts said after the fact.

Dollar Tree

Dollar Tree said that it had $1.15 in earnings per share (EPS) and $5.53 billion in revenue, which compares with consensus estimates of $1.16 in EPS on revenue of $5.53 billion. In the same period of last year, the company said it had EPS of $0.99 and $5.28 billion in revenue.

During the latest quarter, Enterprise same-store sales increased 1.8% on a constant currency basis (or 1.9% when adjusted to include the impact of Canadian currency fluctuations). Same-store sales for the Dollar Tree banner increased 3.7% on a constant currency basis (or 3.8% when adjusted to include the impact of Canadian currency fluctuations). Same-store sales for the Family Dollar banner were flat.

In terms of its segments, the company reported as follows:

  • Dollar Tree net sales increased 7.0% year over year to $2.77 billion.
  • Family Dollar net sales increased 2.3% to $2.76 billion.

Looking ahead to the fiscal third quarter, the company expects to see EPS in the range of $1.11 to $1.18 and revenue between $5.53 billion and $5.64 billion. Consensus estimates call for $1.16 in EPS and $5.57 billion in revenue for the quarter.

Here’s what analysts had to say about Dollar Tree:

  • Morgan Stanley reiterated its Equal Weight rating and cut its price target to $95 from $101.
  • UBS reiterated its Buy rating and cut its price target from $113 to $102.
  • Raymond James reiterated an Outperform rating and cut its target to $90 from $95.
  • Deutsche Bank reiterated its Buy rating and cut its price target from $112 to $94.
  • JPMorgan downgraded it to Neutral from Overweight and cut its target to $90 from $113.

Shares of Dollar Tree were last seen trading at $80.51, with a consensus analyst price target of $99.92 and a 52-week trading range of $79.66 to $116.65.

Dollar General

Dollar General posted $1.52 EPS and $6.44 billion in revenue, which compares with consensus estimates of $1.49 in EPS on revenue of $6.37 billion. In the same period of last year, the retailer said it had EPS of $1.08 and $5.83 billion in revenue.

During the latest quarter, same-store sales increased 3.7% from the second quarter of 2017, driven by increases in average transaction amount and customer traffic. Growth in same-store sales was driven by positive results in the consumables, seasonal and apparel categories, partially offset by sales declines in the home category.

Looking ahead to the fiscal full year, the company expects to see EPS in the range of $5.95 to $6.15 and net sales growing 9.0% to 9.3%. Consensus estimates call for $6.09 in EPS and $25.5 billion in revenue.

Analysts had this to say about Dollar General:

  • Morgan Stanley reiterated its Overweight rating and raised its target to $118 from $116.
  • Deutsche Bank reiterated its Buy rating and raised its price target from $123 to $125.
  • Raymond James reiterated its Buy rating and raised its target price to $122 from $115.
  • Credit Suisse reiterated its Neutral rating and raised its price target from $99 to $108.
  • RBC reiterated its Outperform rating and raised its price target to $115 from $111.

Shares of Dollar General last closed at $108.00, with a consensus price target of $112.21 and a 52-week range of $71.80 to $109.05.