Dollar Tree Q4 earnings outlook: Will the bulls remain at the top?

Written by Dennis Mwenga

Dollar Tree ($DLTR) is a Fortune 500 company which operates 15,115 stores throughout the United States and Canada and has a market capitalization of 31.96 billion dollars. Each store stocks a variety of products from different brands and the departments found in its outlets range from food and snacks, health and beauty products, housewares, glassware, dinnerware, household cleaning supplies, candy, toys, gifts, gift bags and wrapping, stationery, craft supplies, teaching supplies, automotive, electronics, pet supplies, and books.

For 35 years Dollar Tree was adored for selling items strictly for $1, a price point favourable to low-cost retailers and suburban middle-income shoppers, but its decision in September to begin selling items at $1.25 and $1.50 especially after an activist investor took a stake in the company and pressed the chain to raise prices unsettled a lot of its loyal customers.

DLTR is expected to report fourth quarter earnings on March 2nd before market open. The report will be for the fiscal Quarter ending Jan 2022. According to Zacks Investment Research, based on 11 analysts’ forecasts, the consensus EPS forecast for the quarter is $1.79. The reported EPS for the same quarter last year was $2.13. Revenue, based on a survey of 22 analysts done by Yahoo Finance, is expected to be 7.12 billion. DLTR so far has had positive earnings revision activity and over the years this activity has proven to be a powerful indicator of positive surprise earnings nearly 70% of the time according to Zacks investment research.

The Price and EPS Surprise chart displays the company’s stock price along with the EPS surprise. EPS Surprise is the difference (expressed as a percentage) between the actual reported quarterly earnings per share (EPS) vs the estimated quarterly EPS. Source: Zachs Investment research.

In the fiscal third quarter of 2021, the company’s revenue was 6.42 billion dollars (+3.90% year/year) and the net income was 216 million dollars also in the same period, while the earnings per share stood at 0.96. It is important to note that Dollar Tree has never paid an annual dividend, but the total shareholder return for the past 12 months is 26%.

According to TipRanks the DLTR price forecast and target based on 11 Wall Street analysts offering 12-month price targets for Dollar Tree in the last 3 months puts the average price target at $167.10 with a high forecast of $181.00 and a low forecast of $147.00. The average price target represents a 17.61% change from the last price of $142.08. Overall, the stock has a strong Buy consensus rating based on 9 Buys, 2 Holds and 0 Sells.

DLTR price action has been in an overall uptrend on the daily timeframe chart trading well above the 200 simple moving average (blue), having come off a low of $83.64 printed on September 24th last year and finding resistance at $149.14 on the 22nd of November 2021 before the price consolidated in a 12 week bullish flag chart pattern and later broke out. Noticeable also is the fact that the 20 period MA (green) is about to cross above the 50 period MA (red).  The ADX reading below 25.00 indicates the uptrend seems to have lost some steam and this therefore confirms the Bull flag. It will be interesting to see whether the price will remain supported at $132.09 and $139.48, the upper trendline of the bull flag, or continue dropping, targeting $51.43. Resistance is at $149.34.

About the author

Dennis Mwenga

Dennis Mwenga has worked as an independent trader and educator since 2016. His love for the global financial markets grew as a result of his Bachelor of Laws degree and specialization in commercial law and international trade, which drove him to pursue the Chartered Market Technician (I) program in order to build skills for better investment decisions. As a devoted educator, he was encouraged to contribute to an educational series called 222 Days of Foreign Exchange Trading and later co-author a book on the subject, which drove him to seek a career as a mechanical and automated trading systems trainer. He has also organized and hosted financial markets trading educational podcasts and webinar series, in which he interviewed renowned traders, trading mentors, and fund managers with decades of expertise trading a variety of assets in the financial markets.