What's Next For Dollar Tree Amid Icahn Interest? KeyBanc Weighs In

The New York Post reported Tuesday billionaire activist investor Carl Icahn may have accumulated a stake in Dollar Tree, Inc. DLTR and comes at a time when some investors are disappointed with the company's performance.

The Analyst

KeyBanc Capital Markets' Bradley Thomas maintains an Overweight rating on Dollar Tree with a price target lowered from $115 to $108.

The Thesis

Icahn has yet to confirm his stake, but New York Post's sources said he may be looking to reverse its 2015 acquisition of rival Family Dollar he profited on. Thomas said Dollar Tree investors have become disappointed in recent quarters as Family Dollar hasn't posted a quarter of positive comp growth in 2018.

Meanwhile, Thomas said Dollar Tree's management team appears to be "firmly committed" to holding on to Family Dollar as a strategic asset. A sum-of-the-parts valuation model, however, suggests this strategy is a mistake from a valuation point of view. A spin-off of Family Dollar would boost Dollar Tree's stock higher by 13 percent, while the sale of the dollar-store chain to a strategic buyer at a modest premium would create 26 percent upside in Dollar Tree's stock.

Icahn's activist push could also result in Dollar Tree parting ways with its strategy of selling every item in its store for $1. Canada's Dollarama dollar-store chain saw notable margin improvement when it started selling items for more than $1 and the percentage of sales of items more than $1 grew rapidly.

Price Action

Shares of Dollar Tree were trading marginally lower Wednesday at $85.92.

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