Dollar Tree, Inc. (DLTR) — This operator of about 5,000 discount variety stores in the United States and Canada is well positioned to benefit from a weak economy.
But S&P Capital IQ Equity Research cut its earnings estimates for the company in early September. This was due in part to near-term uncertainty regarding the recent acquisition of Family Dollar and the anticipation of greater-than-expected EPS dilution. Its analysts lowered their EPS estimate for fiscal 2016, ending in January, by 56 cents to $3.45, and their fiscal 2017 estimate by 11 cents to $3.94. They currently rate DLTR stock a “hold” with a $75 price target.
But J.P. Morgan is more optimistic. It re-initiated coverage of DLTR stock with an “overweight” rating and $90 price target. Analyst Mathew Boss said even though the possible synergies from the Family Dollar deal will take time to pay off, the integration is “firmly under the control of Dollar Tree’s management.” He said he expects margins to expand to nearly 4% by 2018.
From a technical point of view, the chart is promising. But DLTR stock has not yet overcome the major high-volume sell signal from my proprietary indicator, the Collins-Bollinger Reversal (CBR), or the death cross triggered early in September.
The “V” now forming is encouraging and could develop into a positive if DLTR stock holds above its 50-day moving average at $66.29 and the minor recovery high at $70.46. However, relatively low volume is not conducive to a permanent turnaround, and MACD is currently overbought. Therefore, I am placing DLTR stock on my watch list.
Dollar Tree responds well to my CBR system for both buys and sells, indicated on the chart by the red arrows. The most impactful signals are accompanied by high volume, like the major sell signal in late August that was followed by the highest volume of the year. If DLTR stock breaks out with a high-volume CBR buy, jump on it with a target of $78.
