Dollar Tree (DLTR) stock is up over 5% on Wednesday, March 26 despite reporting a widening loss for its fiscal Q4. Investors seem content since the discount retailer confirmed the sale of Family Dollar today.
Macellum Capital and Brigade Capital have agreed to buy Family Dollar for $1.01 billion. While the deal price is sharply below the $8.5 billion for which DLTR acquired that chain in 2015, investors are cheering the news because FD has long been a drag on Dollar Tree’s overall financials.
In fact, continued weakness in numbers have cut DLTR stock in half over the past 12 months.
Family Dollar Sale Removes an Overhang from DLTR
Fears more broadly were that Dollar Tree will have to close its unprofitable Family Dollar stores or pay upfront to have someone take it from its hands.
But the discount retailer has secured an agreement that’s actually bringing over $1 billion to its balance sheet. Dollar Tree can now use this fresh capital to improve its business and create more value for shareholders.
That’s what is driving the DLTR share price up on Wednesday.
Dollar Tree stock may be worth buying at current levels since unloading the unprofitable FD unit could improve its return on invested capital (ROIC) and may lead to upward revisions on earning.
Jim Cramer Shares His View on Dollar Tree Stock
Former hedge fund manager Jim Cramer also expects Dollar Tree shares to do better following the Family Dollar sale as he views the acquisition as a “fiasco” and describes Dollar Tree as “incompetent” in choosing not to rebrand Family Dollar. Ultimately, he said Dollar Tree “was never able to fix Family Dollar.”
Buying DLTR stock may be an exciting proposition also because escalating tariffs could push the U.S. economy into a recession by the end of this year.
Consumers tend to be more price-sensitive during economic downturns, which may prove to be a meaningful tailwind for Dollar Tree stock in 2025.
Plus, DLTR shares have lost some 50% in the trailing 12 months, so the valuation is quite appealing as of this writing.
DLTR Shares Could Surpass $80 by the End of 2025
Note that Wall Street was bullish on Dollar Tree stock even without the Family Dollar news.
Heading into Wednesday, analysts had a consensus “Moderate Buy” rating on DLTR with the mean target of about $81 indicating 15% upside from current levels.
