Dollar Tree, Inc. - Momentum

Dollar Tree, Inc. (DLTR) continues to trade near its multi-year high at $57.06 on the heels of a solid Q3 earnings surprise of 18%. With consumers still flocking to discount retailers in the shaky economic recovery, this Zacks #1 rank stock has momentum to spare.

Company Description

Dollar Tree, Inc. operates discount variety stores in the US with most merchandise priced for $1. The company was founded in 1986 and has a market cap of $7.04 billion.

Discount retailers have been strong for the last two years as consumers search for value in an uncertain economic environment. That trend showed up in Dollar Tree's Q3 results from mid November that handily beat expectations.

Third-Quarter Results

Revenue for the period was up 14% from last year to $1.43 billion. Earnings also came in strong at 73 cents, 18% ahead of the Zacks Consensus Estimate, where the company now has an average earnings surprise of 11.5% over the last four quarters.

The company noted that it saw strength in a broad range of its products, including food, house wares, beauty supplies and home products, with increased customer traffic and a higher average ticket price providing support.

Dollar Tree's operating margin was also on the upswing, increasing 130 bps from last year on a 20bps gain in gross margin and 110 bps reduction in expenses.

Balance Sheet

The company emerged from the good quarter with its strong balance sheet full in tact, with cash and equivalents of $310 million against total debt of $267 million.

Estimates Up

We saw some solid movement in estimates off the good quarter, with the current year up 14 cents to $3.21 while the next-year estimate gained 20 cents to $3.68, a solid 14.5% growth projection.

Valuation

But in spite of the gains, the valuation picture is still in check, with a forward P/E of 17.5X, in line with the industry average.

6-Month Chart

On the chart, shares have been grinding higher with the market since early September, recently hitting a new all-time high at $57.02 on the good quarter. The stochastic below the chart is signaling that shares are trading safely away from over-bought territory. Take a look below.

Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the new Zacks Momentum Trader Service.
 
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