By Dollar Tree Inc (NASDAQ: DLTR) has a history of outperforming when consumers turn wary of spending on fears of a looming economic slowdown.
But such does not appear to be the case this time, as per the earnings release the chain of discount stores posted on Wednesday.
DLTR lost close to 20% this morning after reporting disappointing results for its second quarter and lowering its guidance for the full year, citing immense pressure on middle- and higher-income customers.
Still, Piper Sandler analyst Peter Keith continues to see further downside in shares of Dollar Tree Inc.
Walmart is making life difficult for Dollar Tree’s stock
Dollar Tree stock has been cut in half this year but Peter Keith continues to recommend avoiding it as Walmart is now succeeding in attracting middle- and upper-income consumers with its online stores.
“Walmart is this giant vacuum cleaner that’s sucking up a lot of market share as more and more shoppers are moving to eCommerce and using that as their convenience play,” he told CNBC in a recent interview.
Walmart grew sales at its US stores only by a whopping $4.4 billion in its latest reported quarter. In comparison, DLTR reported overall revenue of just $7.38 billion for its Q2 on Wednesday.
Still, the rest of Wall Street doesn’t agree with Piper Sandler. Analysts see an upside in Dollar Tree stock to $131 on average which signals potential for about an 85% gain from here.
US presidential elections could weigh on DLTR
Peter Keith sees further downside in Dollar Tree’s share price also because the US presidential election in November could make things even worse for the discount retailer regardless of who lands in the Office.
A Trump victory runs the risk of higher tariffs that may prove to be a material headwind for the likes of DLTR as it imports a whole lot of stuff from China.
On the other hand, a Harris victory could sharply increase costs for the Nasdaq-listed firm as a Democratic government is expected to push for an overtime rule change that may raise the minimum salaries of certain workers from $44,000 to $59,000, as per the Piper Sandler analyst.
Note that Dollar Tree stock is now trading below its pandemic low. DLTR does not have a healthy dividend yield on its side to keep it attractive for at least one type of investor either.
Still, analysts at BMO Capital reiterated their “outperform” rating on shares of the American multi-price-point chain of discount variety stores on Wednesday.
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