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Friday, June 01, 2007

Through The Fly's Eyes: Dollar Tree

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.













A Buck and It's Yours

So, you run a chain of stores where everything costs a dollar and you are wondering how to advertise it. One of the biggest such outfits in the U.S. does so simply by referring to its shopping experience as the "Thrill of the Hunt."

Dollar Tree Stores (DLTR) runs a network of about 3,300 discount variety stores in 48 states, operating under Dollar Tree, Deal$, Dollar Bills and Dollar Express banners. The stores offer housewares, toys, seasonal items, food, health and beauty aids, gifts and books. All items are priced at one dollar. The outlets are generally located in high-traffic strip centers, anchored by mass merchandisers and supermarkets. Dollar General (DG) and Family Dollar Stores (FDO) are major competitors.

The firm pleased investors earlier in the week, when it reported Q1 EPS of 38 cents and revenues of $975 million. Analysts had been looking for 37 cents and $966.4 million. Management also guided Q2 EPS to 29-32 cents (31 cent consensus), Q2 revenues to $960-$985 million ($963.64M consensus), FY08 EPS to $2.00-$2.12 ($2.10 consensus) and FY08 revenues to $4.28-$4.38 billion ($4.30B consensus). The news kept DLTR shares cycling through a positive three month trading channel. The price is currently at the base of that channel, where Momentum and Stochastic technical parameters suggest the potential for a rise back toward the top.

Brokers recommend the issue with four "strong buys," three "buys" and 10 "holds." Analysts expect a 13% average annual growth rate through the next five years. The DLTR Price to Cash Flow ratio (11.87), Price to Free Cash Flow ratio (18.00), EPS Growth rate (22.58%), Return on Assets (10.46%) and Return on Investment (12.83%) compare favorably with industry, sector and S&P 500 averages.

Institutional investors hold about 95% of the outstanding shares. The stock is one of those used to calculate the S&P 400 MidCap Index. Over the past 52 weeks, it has traded between $23.90 and $44.12. A stop-loss of $36.95 looks good here.

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