2009-12-30 17:04:49
http://www.thestockadvisors.com/content/view/4435/9/
Dollar Tree (DLTR): Michael Vodicka's top stock for 2010 Print
Monday, 28 December 2009
"Discount retailers are in high fashion right now, and 2010 could be a good time to capitalize on the macro-level trend toward value-driven consumption as consumers battle too much debt and a weak labor market," says Michael Vodicka.
To benefit from this trend, the momentum stock strategist for Zacks.com looks to Dollar Tree (NASDAQ: DLTR) as his top pick for the coming year.
"2009 was a year of surprises. Stocks ended up logging a monumental rally that kicked off in March, most of the major domestic banks have freed themselves from TARP restrictions and the housing market has shown signs of stability.
"But in spite of all these incredible gains, consumers are still struggling with too much debt and high unemployment. This is the ideal consumer environment for an extreme discounter like Dollar Tree.
"Dollar Tree isn??t a new name, the company??s been around since 1986, has a market cap of $4.26 billion and operates more than 3,600 stores in 48 states.
"It carries a wide range of consumer and household products like paper towels, cleaning goods and beauty supplies, all for less than $1.
"The company??s strategic advantage was on full display in 2009, beating the consensus estimate in each quarter by an average of 11%. Its Q4 results from late November, heading into the holiday season included sales growth of 12% from last year.
"The top line growth goes well with gross and operational margin expansion, both on the upswing due to lower commodity costs and process evaluation.
"Dollar Tree bought back 3.5 million shares in 2009, with $300 million remaining from a $500 million Board approval. The company has been committed to taking advantage of the value-driven consumer environment, opening 94 new stores this year and expanding or relocating another 74.
"But in spite of these moves, Dollar Tree balance sheet still looks strong, with cash and equivalents totaling $342 million against a debt load of $267.5 million, with just $17.6 million current.
"Looking forward, analysts are optimistic about the company??s prospects in 2010, targeting full-year earnings of $3.84 per share. With shares trading at $48, this stock has a forward P/E of just 12.5, a nice discount to the overall market."
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Dollar Tree's suburban locations expose the company to more middle-income consumers, as opposed to rivals Family Dollar and Dollar General, which operate primarily in rural and urban locations and tend to serve lower-income customers. (z) (-P)
MAGE