Dollar Tree: Investment Breadth and Changes to Assortment Dominate Plans; Shares Pricey

We don't expect to make any material changes to our $105 fair value estimate for no-moat Dollar Tree after digesting the firm's June 21 investor day presentation and midterm guidance, with larger near-term investments offsetting our expectation for a modest bump in medium-term comparable-store sales. Management's midterm forecast for $10-plus in 2026 diluted EPS and operating margins of 14%-15% at Dollar Tree and 5%-plus at Family Dollar largely aligns with our own forecasts, while its targeted $2.3 million in capital expenditures in 2024-25 is approximately $1.3 billion higher than our prior forecast, offsetting the sales accretion. While we appreciate the potential same-store sales lift from multiprice inventory, we foresee heightened competition as the firm pushes into denser, urban markets, which suggests that the target for mid-single-digit annual same-store sales growth is aggressive. The shares jumped about 5% after the presentation and continue to trade at about a 35% premium to our intrinsic valuation.