BMO Capital Markets on Friday cut its recommendation for Dollar Tree to Underperform from Market Perform and lowered its price target to $95, attributing the change to what it sees as an elevated valuation and ambitious earnings assumptions given execution and competitive risks.
In premarket trading, shares of the discount retailer were down 1.11%.
In its note, BMO argued Dollar Tree has not invested sufficiently in key digital areas including e-commerce, digital tools and retail media. The brokerage said peers are leveraging those channels to achieve faster sales growth and improved margins, a dynamic that could leave Dollar Tree at a disadvantage if it does not accelerate its digital capabilities.
BMO highlighted valuation metrics that it considers generous for the company’s profile. The stock is trading at roughly 19x consensus 2026 earnings, a figure that assumes 16% year-on-year growth. BMO said that multiple is rich for a retailer facing both execution and competitive pressures, and instead applied a 15x multiple to its own below-consensus forecast, which projects 12% earnings growth for fiscal 2027.
The analyst team also called attention to Dollar Tree’s ongoing reliance on its multi-price $3 to $5 assortment of food and consumables to sustain comparable-store sales growth of about 3% to 4%. BMO warned that this dependence may become more exposed in 2026 once a recent uplift tied to tariff-related price increases fades.
Another area of concern for BMO is the potential for "dis-synergies" connected with the operational separation of the Dollar Tree and Family Dollar banners. The firm estimates the company intends to eliminate nearly $200 million in corporate overhead over two years. While BMO views this plan as conservative relative to prior internal cost allocations, it noted earlier disclosures that suggested approximately $450 million in deal synergies at the time of the transaction in 2018, an amount BMO equates to roughly $580 million on a current basis.
Importantly, BMO observed that as much as $200 million of those previously disclosed synergies were tied directly to the Dollar Tree banner, including procurement-related savings that could influence gross margins. Taken together, the brokerage said these factors raise the risk that the company will struggle to achieve its long-term target of corporate overhead equal to 2% of sales and to realize the anticipated margin expansion.
Key takeaways
- BMO downgraded Dollar Tree to Underperform and cut its price target to $95.
- The brokerage flagged insufficient investment in e-commerce, digital tools and retail media as a key competitive weakness.
- Separation of Dollar Tree and Family Dollar could create "dis-synergies," with up to $200 million of prior synergies tied to the Dollar Tree banner potentially affecting procurement and gross margins.
Impacted sectors - retail, consumer staples and e-commerce platforms.
Risks and uncertainties
- Execution and competitive risk from limited digital investment, which could hinder sales growth and margin improvement.
- Exposure in 2026 as tariff-related price effects diminish, potentially pressuring comparable-store sales that currently rely on the $3 to $5 assortment.
- Potential loss of previously expected cost synergies following the banner separation, raising uncertainty around corporate overhead reduction targets and margin expansion goals.