Option Trade 
Dollar Tree, Inc. (NASDAQ:DLTR) Calls 
Monday, August 31, 2015

**OPTION TRADE: Buy the DLTR Sep 2015 80.000 call (DLTR150918C00080000) at approximately $1.20 (or lower if the market opens lower on Monday morning). Place a protective stop loss at $0.45, and a pre-determined sell at $2.50.

by Ian Harvey

August 31, 2015


Dollar Tree, Inc. (NASDAQ: DLTR), an operator of discount variety stores offering merchandise at the fixed price of $ 1.00, is scheduled to report its second-quarter results on September 1. The company will release the results before the market open with analysts forecasting earnings of $0.67 per share and revenue of $2.26 billion for the quarter. The stock has appreciated 9.9% on the year.

Dollar Tree was dragged down along with the overall market in recent days, but has already made back a big part of those losses. The stock has been very stable since early March, and should make back the rest of its recent losses when stability returns to the broader market.

Dollar Tree has been doing a good job growing its earnings, which were up 6.0% year over year during the first-quarter. Consumer confidence remains upbeat, but the recent market volatility will likely have a negative impact on confidence readings moving forward. Overall, this is not a horrible thing for discount retailers, as consumers will likely continue to spend, but will also seek out the best deals whenever possible. This plays into Dollar Tree's hands, which is a major reason why the stock quickly made back most of its recent losses.

Technical Details

Shares of Dollar Tree will open at 76.73 on Monday. The firm has a 50-day moving average price of $78.54 and a 200 day moving average price of $79.16.

Dollar Tree has a 12-month low of $53.70 and a 12-month high of $84.22. The stock has a market cap of $15.82 billion and a PE ratio of 29.86.


Previous Earnings

Dollar Tree last posted its quarterly earnings results on Thursday, May 21st. The company reported $0.71 earnings per share for the quarter, missing the consensus estimate of $0.75 by $0.04. The company earned $2.18 billion during the quarter, compared to the consensus estimate of $2.20 billion. The firm’s revenue was up 8.8% compared to the same quarter last year.

During the same quarter in the prior year, the firm earned $0.66 EPS. On average, equities research analysts forecast that Dollar Tree will post $3.40 earnings per share for the current fiscal year.

Future Earnings

For the quarter to be reported, Dollar Tree expects total sales in the range of $2.17–$2.23 billion, on the back of low to low-mid single-digit comparable store sales growth. Further, the company anticipates adjusted earnings for the quarter to range from 63–68 cents per share.

Positive Factors

Dollar Tree is progressing well with its growth endeavors, including store expansion, omni-channel development and penetration into new markets. Also, the successful completion of the Family Dollar buyout is expected to help the company achieve operational and distribution efficiencies as well as cost synergies. These factors bode well as they are likely to be growth drivers for the company.


Last Thursday, rival Dollar General (DG) reported mixed financial results, earning 95 cents per share, a 14% increase over the previous year, on revenue that rose 8% to $5.1 billion.

Analysts were expecting the company to report earnings of 94 cents per share on revenue of $5.14 billion, and the stock price suffered.

However, Dollar Tree is a better option than Dollar General, and the merger will certainly help the numbers. Dollar Tree outbid Dollar General to buy Family Dollar. Federal regulators approved the merger in July. The combined company will be in a better position to compete with Wal-Mart (WMT), which reported a weaker-than-expected profit earlier this month and cut its outlook for the full year.

Analysts Opinions

TheStreet Ratings team rates Dollar Tree Inc as a Buy, with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:-

"We rate Dollar Tree Inc (DLTR) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, expanding profit margins and notable return on equity. We feel its strengths outweigh the fact that the company has had subpar growth in net income."

The company has also been the subject of a number of other research reports:-

• Citigroup Inc. increased their price objective on Dollar Tree from $85.00 to $89.00 and gave the stock a “neutral” rating in a research note on Wednesday, July 15th.

• Zacks raised Dollar Tree from a “sell” rating to a “hold” rating in a research report on Friday, July 10th.

• Morgan Stanley lowered Dollar Tree from an “equal weight” rating to an “underweight” rating and set a $77.00 price objective on the stock. in a report on Thursday, July 9th.

• RBC Capital raised their target price on Dollar Tree from $90.00 to $91.00 and gave the company an “outperform” rating in a report on Thursday, August 6th.

• Finally, Cantor Fitzgerald reiterated a “buy” rating and issued a $95.00 price objective on shares of Dollar Tree in a research report on Friday, May 22nd.

One investment analyst has rated the stock with a sell rating, thirteen have assigned a hold rating, six have given a buy rating and one has issued a strong buy rating to the stock. Dollar Tree presently has a consensus rating of “Hold” and a consensus target price of $82.47.

Harvey’s Options Volatility Indicator


Dollar Tree will continue to benefit from store growth. Family Dollar more than doubles Dollar Tree's store count. The company plans to continue adding new stores in the U.S. and Canada each year. With more stores and steady increases in same-store sales, Dollar Tree will achieve strong increases in revenue and earnings going forward. All told, the stock is likely to outperform the broader market due to its sustainable above average earnings growth.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

**OPTION TRADE: Buy the DLTR Sep 2015 80.000 call (DLTR150918C00080000) at approximately $1.20 (or lower if the market opens lower on Monday morning). Place a protective stop loss at $0.45, and a pre-determined sell at $2.50.

”Success is simple. Do what's right, the right way, at the right time.”

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Options traders win because they are successful.

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