Dollar Tree Earnings Preview: Higher EPS and Sales Expected

Dollar Tree DLTR is scheduled to report fiscal third-quarter 2011 results Thursday, November 17, before the opening bell. The company has seen double-digit year-over-year percentage revenue growth for the past four quarters, as well as its net income rise in three consecutive quarters. There is little reason for investors to doubt that cost-conscious consumers are continuing to seek out bargains. The consensus forecast calls for Dollar Tree to report earnings of $0.83 per share, which would be a dime more than in the same quarter of last year. And that EPS estimate is up a penny from where it was 60 days ago. Note though that analysts have underestimated its quarterly per-share earnings results since 2007. Analysts also expect the company to report that revenues increased 10.4% from a year ago to $1.6 billion. Looking ahead to the current quarter, revenues are anticipated to be 11.0% higher year over year. And for the full year, the forecast so far calls for revenues to be up 11.8%, with per-share earnings 17.9% higher than a year ago. The Company Dollar Tree operates more than 4,000 discount variety stores under several banners in the United States and Canada. Its stores offer consumable merchandise, variety merchandise and seasonal items, typically at a cost of $1.00. The company was founded in 1986, is headquartered in Chesapeake, Va., and currently has a market cap of $9.6 billion. During the three months that ended in October, the company announced a $1.5 billion common stock repurchasing plan. And Dollar Tree credited its higher-than-expected second-quarter profit to cost reductions that boosted margins, and the retailer raised its earnings outlook for the year. Performance Per-share earnings are expected to grow more than 17% over the next five years. The P/E ratio is higher than the industry average, but so is the operating margin, and the return on equity is a healthy 30.4%. The PEG ratio is 1.0. The consensus recommendation of analysts is to buy the stock; none of the analysts surveyed rate the stock at Sell. Their mean price target is $81.27 per share. But that is only a little more than 3% higher than the current share price. The share price has pulled back about 5% from a recent 52-week high. It remains above the 50-day and 200-day moving averages. And shares are still trading almost 47% higher than a year ago. Over the past six months, the stock has underperformed competitors such as Family Dollar FDO and the 99 Cents Only Stores NDN, as well as the broader markets. Action Items: Bullish: Investors interested in exchange traded funds invested in Dollar Tree might want to consider the following trades:

• PowerShares Dynamic Retail PMR is more than 17% higher than a year ago.
• SPDR S&P 400 Mid Cap Growth ETF MDYG is more than 8% higher than a year ago.
• PowerShares Dynamic Consumer Discretionary PEZ is more than 5% higher than a year ago.

Bearish: Traders may want to consider these alternative positions:

• Dollar General DG is more than 37% higher than a year ago.
• Family Dollar FDO is more than 22% higher than a year ago.
• Walmart WMT is about 12% higher than a year ago.

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