Dollar Tree gets 2 analyst upgrades as turnaround gains traction

Two Wall Street firms upgraded Dollar Tree Inc. on Thursday, citing conservative guidance and a strengthening balance sheet as the discount retailer's turnaround takes hold.

"Fiscal 2026 guidance appears conservative, leaving room for upside if lower fuel costs, possible tariff refunds and share repurchases provide support," Raymond James analysts said. The firm upgraded the stock to Outperform from Market Perform with a $140 price target, implying about 13 percent upside from Wednesday's close of $122.13.

Goldman Sachs also turned more constructive, upgrading Dollar Tree to Neutral from Sell and raising its price target to $125 from $105. The firm cited improving customer perceptions around pricing and value, along with the retailer's healthy cash position and the possibility of tariff-related reimbursements. Goldman maintained a measured outlook, noting that store traffic remains soft and competition among value-oriented retailers continues to pressure the sector.

The upgrades come as Dollar Tree executes a turnaround centered on its multi-price strategy, which is driving higher spending per visit. The company expects fiscal 2026 revenue of $20.5 billion to $20.7 billion, with comparable-store sales growth of 3 percent to 4 percent. Management raised its full-year adjusted earnings guidance to $6.70 to $7.10 per diluted share, up from prior expectations.

Dollar Tree's gross margin expanded by 120 basis points in its latest quarter, and adjusted earnings per share jumped 38 percent, showing that operational improvements are taking hold. Management said it is "starting to bend the curve on shrink," a direct result of tighter inventory controls and improved store-level execution. The company operates more than 16,000 stores across its Dollar Tree and Family Dollar banners.

The stock trades at about 13.9 times operating income, a steep discount to rival Costco Wholesale Corp., which trades at 35.6 times. While Costco's membership model provides a powerful moat, its membership growth slowed to 4.1 percent, the lowest level in some time, and its core-on-core margins contracted by 9 basis points as it invested in lower prices. Dollar Tree's valuation offers a lower bar for continued improvement, with the turnaround still in its early innings.

The company plans to open about 400 new stores in fiscal 2026 while closing roughly 75 locations, resulting in net unit growth of about 325 stores. Dollar Tree is scheduled to report second-quarter earnings in September, with analysts projecting $4.85 billion in revenue and $1.09 per share in earnings. The stock has a 52-week range of $84.71 to $142.40 and currently trades near the middle of that band.

The dual upgrades show that Wall Street sees a more balanced risk-reward profile for Dollar Tree after a prolonged period of pressure from competition and traffic softness. Investors will watch the Q2 report in September for evidence that the turnaround is gaining momentum and whether margin expansion can continue.

This article is for informational purposes only and does not constitute investment advice.