Goldman Sachs Upgrading Dollar Tree (DLTR)

Goldman Sachs is upgrading shares of Dollar Tree DLTR to Buy with a $61 price target.

In a note to clients, Goldman writes, "We are upgrading DLTR to Buy from Neutral with 19% upside to our $61, 12-month price target based on (1) 1Q comp re-acceleration helped by later Easter, (2) continued EBIT margin expansion as comp leverage
offsets fuel concerns, (3) optimal seasonal outperformance for the stock is 1Q and (4) compelling valuation of 13.3X our above-consensus FY11E EPS for a retailer with 7% square footage growth. In a world where consumers are seeking to strike the right balance between frugal and frivolous, we believe Dollar Tree is ideally positioned to gain relevance."

Goldman goes on to say, "The time to buy DLTR is now, in our view, as shares have seen an average increase of 18% (vs. S&P +5%) during 1Q over the past four years, and the stock is +1% QTD. While the stock has come under pressure as 4Q SSS sales slowed and concerns of higher fuel prices could pressure margins, we believe current valuation overly discounts these fears, as (1) 1Q SSS should reaccelerate to +6% levels from 2010 as weather improves and a later Easter benefits the quarter by $15 mn and (2) leverage from +MSD comps should overwhelm the impact of higher gas prices, even in extreme cases. Shares currently trade at 13.3X our 2011E EPS, at an 8% discount to historical average and 25% discount to retail square footage growth peers, providing what we believe to be a compelling entry point."

Shares of DLTR are up $1.51 to $52.82, a gain of just under 2% this morning.