Dollar Tree Inc. (DLTR), which operates discount stores, has strong growth but also value characteristics. Consumers are flocking to companies that offer “value” for the dollar. In the case of Dollar Tree, that means literally.

Analysts expect year over year growth in 2009 of 16.92% but the stock is trading at just 14x forward earnings.

Company Description

Dollar Tree is a discount retailer operating 3,667 stores in strip malls and shopping centers in 48 states and 9 distribution centers.

The company’s concept is to sell items for $1 or less.

Sales jumped 14.2% in the First Quarter

Dollar Tree is one of the few retailers actually benefitting from the slow economy due to its position as a provider of more value for the buck.

On May 27, the company reported fiscal first quarter earnings that surprised on estimates by 11.86%, or 7 cents. It was the fourth consecutive earnings surprise.

Earnings per share were 66 cents which was 37.5% higher than the 48 cents reported in the year ago period. Analysts expected just 59 cents.

Total revenue jumped 14.2% to $1.05 billion. Sales were humming at existing stores, climbing 9.2% in the quarter. Customer traffic also increased during the quarter.

The company continued to grow both in the brick and mortar stores and through the internet. Dollar Tree opened 79 stores in the quarter while closing only 3. It also expanded or relocated 25 others. Retail selling square footage rose 6.4% year over year to 31 million square feet.

Dollar Tree also introduced a newly designed website with ecommerce capabilities in April.

Bullish Guidance for Second Quarter and Full Year 2009

The company is estimating low to mid single digit comparable store sales in the second quarter and sales in the range of $1.17 billion and $1.2 billion. EPS is expected to be in the range of 47 to 51 cents.

Dollar Tree raised 2009 guidance given the strong first quarter. Sales were raised to between $5.05 billion and $5.15 billion from $4.96 billion to $5.09 billion in the February forecast.

2009 earnings per share were increased to $2.75 to $2.90 from February’s range of $2.55 to $2.75.

Covering Analysts Raise to Match Guidance

Give the company’s optimism and the first quarter results, covering analysts raised consensus estimates on both the second quarter and the full year.

Second quarter consensus now stands at 50 cents per share, which is at the high end of the company’s forecasted range.

Full-year 2009 estimates spiked by 4.2% to $2.96 from $2.84 which is actually hotter than the company is anticipating.

Value Fundamentals

Dollar Tree is a Zacks #1 Rank (strong buy) stock. It has a forward P/E of 14. It has a price-to-book ratio of 2.99. The company also has an outstanding 5-year average return on equity (ROE) of 17.81%.

DLTR Has Rallied Since March

Like many stocks, Dollar Tree has rallied sharply since the March 2009 lows. See the chart below:

Zacks Investment Research
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