Analyst Puts Dollar Tree's Family Dollar Stores On Amazon Radar

Dollar Tree, Inc. (NASDAQ: DLTR) ought to consider unloading its underperforming Family Dollar Stores on a big, hungry retailer like, oh, say, Amazon.com, Inc. (NASDAQ: AMZN), says Loop Capital Markets analyst Anthony Chukumba.

“Dollar Tree has significantly underperformed the broader market indices over the past couple of years as the Family Dollar integration has gone far worse than many investors initially expected,” he said in an analyst note on Wednesday (check out Chukumba's track record).

“In addition, we believe a Family Dollar sale would likely be EPS accretive, and could result in significant stock price appreciation.”

Family Dollar Results Lackluster

He rated Dollar Tree a Hold and set a target price of $80. In Wednesday trading, Dollar Tree traded down 1.29 percent.

Amazon’s planned acquisition of Whole Foods Market, Inc. (NASDAQ: WFM) has created a cottage industry in predicting where the retail giant will strike next. Besides Amazon, Chukumba listed Wal-Mart Stores Inc (NYSE: WMT), Dollar General Corp. (NYSE: DG) and private equity firms as potential suitors.

Related Link: Speculation Runs Amok: Who Will Be Amazon’s Next Acquisition Target?

Dollar Tree acquired Family Dollar in 2015, but the merger hasn’t worked out, he said.

“Given Family Dollar's continued struggles, we believe Dollar Tree management should consider divesting Family Dollar,” he said. “We estimate selling Family Dollar would be $0.23, or 4.9 percent accretive to our current Dollar Tree F2018 diluted EPS estimate.”

He said he doesn’t believe a Family Dollar divestiture is a compelling reason to purchase Dollar Tree stock.

“That said, we think the possibility of such a transaction provides a level of downside protection — particularly if Family Dollar continues to underperform. Thus, we maintain our Hold rating.”

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Image Credit: "Family Dollar 50th Anniversary Flagship Store, Charlotte, NC" By Jml0519 at English Wikipedia, CC BY-SA 3.0, via Wikimedia Commons

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