Dollar Tree Inc Valuation – May 2018 $DLTR

Company Profile (excerpt from Reuters): Dollar Tree, Inc., incorporated on February 22, 2008, is an operator of discount variety stores. As of January 28, 2017, the Company operated 14,334 stores in 48 states and the District of Columbia, and five Canadian provinces. The Company’s segments include Dollar Tree and Family Dollar. The Dollar Tree segment is the operator of discount variety stores offering merchandise at a fixed price. The Family Dollar segment operates a chain of general merchandise retail discount stores providing consumers with a selection of merchandise in neighborhood stores. The Company’s stores operate under the names of Dollar Tree, Family Dollar and Dollar Tree Canada. As of January 28, 2017, the Dollar Tree segment included 6,360 stores operating under the Dollar Tree and Dollar Tree Canada brands, 11 distribution centers in the United States and two in Canada and a Store Support Center in Chesapeake, Virginia. The Family Dollar segment consists of its operations under the Family Dollar brand, 11 distribution centers and a Store Support Center in Matthews, North Carolina. As of January 28, 2017, the Company offered 7,100 items in its stores. The Company offers a range of everyday basic products, and supplements these basic, everyday items with seasonal, closeout and promotional merchandise.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of DLTR – May 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $22,656,970,683 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.60 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 246.05% Pass
6. Moderate PEmg Ratio PEmg < 20 19.65 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.16 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.60 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.77 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $4.85
MG Growth Estimate 12.99%
MG Value $167.21
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $70.33
MG Value based on 0% Growth $41.23
Market Implied Growth Rate 5.57%
Current Price $95.29
% of Intrinsic Value 56.99%

Dollar Tree, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.6 in 2015 to an estimated $4.85 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.57% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Dollar Tree, Inc. revealed the company was trading above its Graham Number of $60.76. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 19.65, which was below the industry average of 36.18, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-19.2.

Dollar Tree, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$19.20
Graham Number $60.76
PEmg 19.65
Current Ratio 1.60
PB Ratio 3.16
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 1/1/2018
Total Current Assets $4,576,300,000
Total Current Liabilities $2,859,100,000
Long-Term Debt $4,762,100,000
Total Assets $16,332,800,000
Intangible Assets $8,505,300,000
Total Liabilities $9,150,500,000
Shares Outstanding (Diluted Average) 238,300,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.43
Jan2018 $7.21
Jan2017 $3.78
Jan2016 $1.26
Jan2015 $2.90
Jan2014 $2.72
Jan2013 $2.68
Jan2012 $2.01
Jan2011 $1.55
Jan2010 $1.19
Jan2009 $0.84
Jan2008 $0.70
Jan2007 $0.62
Jan2006 $0.53
Jan2005 $0.53
Jan2004 $0.51
Dec2002 $0.45
Dec2001 $0.36
Dec2000 $0.36
Dec1999 $0.31
Dec1998 $0.24

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.85
Jan2018 $4.23
Jan2017 $2.72
Jan2016 $2.23
Jan2015 $2.60
Jan2014 $2.31
Jan2013 $1.95
Jan2012 $1.48
Jan2011 $1.14
Jan2010 $0.88
Jan2009 $0.70
Jan2008 $0.61
Jan2007 $0.55
Jan2006 $0.51
Jan2005 $0.47
Jan2004 $0.43
Dec2002 $0.38

Recommended Reading:

Other ModernGraham posts about the company

Dollar Tree Inc Valuation – February 2017 $DLTR
Dollar Tree Stores Inc. Valuation – October 2015 Update $DLTR
5 Undervalued Companies with a Low Beta – October 2015
The Best Companies of the Retail Industry – August 2015
The 20 Best Stocks For Value Investors This Week – 7/25/15

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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