Dollar Tree Earnings: After Cratering Amid Soft Consumer Spending, Tepid Outlook, Shares a Bargain

We plan to lower our $115 fair value estimate on no-moat Dollar Tree by a mid- to high-single-digit percentage following its underwhelming second-quarter earnings release and lackluster outlook. The firm cited a softer spending environment as the primary culprit for its full-year EPS revision, which now sits at $5.20-$5.60 (from $6.50-$7.00). Our planned fair value cut does not rival the 20% decline in the stock price as we still think management is taking necessary steps to improve the firm’s long-term margin trajectory by partaking in store renovations, refining its distribution processes, and closing underperforming Family Dollar stores. As such, we think shares look very undervalued.