Discount Retail Stock Sports "Win-Win" Catalyst, Says Analyst

DLTR is underperforming the broader market, presenting an exciting entry point

Deputy Editor
Jan 29, 2024 at 9:14 AM
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Shares of Dollar Tree Inc (NASDAQ:DLTR) are 2.8% higher premarket following a bull note from J.P. Morgan Securities. The analyst upgraded the discount retail stock to "overweight" from "neutral" and raised its price target from $122 to $157 -- an 18.3% upside to Friday's close.

The Wall Street brokerage cited higher profitability, calling the company's Family Dollar banner store's optimization a potential "win-win" catalyst. What's more, Dollar Tree's CEO said deflation could present a multi-year merchandising opportunity that will allow for product reinvestment and re-introduction of items discontinued due to inflation pressures.

On the charts, DLTR is underperforming the broader market, down 6.6% this quarter, while the SPDR S&P 500 ETF Trust (SPY) boasts a 2.6% gain in the same timeframe. This presents a unique entry point for investors, as it trades in the range of a late-August post earnings pullback and looks to open above $136 -- a chance to move above this area for the first time in 2024. 

Despite the underperformance, the majority of analysts are still optimistic on Dollar Tree stock, with 11 rating it a "strong buy." However, there's still room for pessimism to unwind, considering eight others recommend a tepid "hold," and one says "sell."  

Options traders looking to speculate on DLTR's short-term trajectory should consider options. The equity's Schaeffer's Volatility Index (SVI) of 26% is higher than just 16% of all other readings from the past year, suggesting near-term option contracts are attractively priced at the moment, from a historical volatility standpoint.

What's more, Dollar Tree stock's Schaeffer's Volatility Scorecard (SVS), which sits at a slightly elevated 77 out of 100, suggesting it exceeded option traders' volatility expectations during the past year. 


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