Dollar Tree and Family Dollar have both delivered a positive 2-year growth based on recent quarterly performance and are above pre-pandemic levels. Discretionary sales accounted for more than 57% of total sales in the last quarter and have been increasing gradually which is a positive sign. The company’s revenue increase despite the spread of the Omicron variant during the past quarter does show its robustness. Dollar Tree’s business continues to benefit from stimulus dollars from the previous year. Its 2022 expansion plans are ambitious as Dollar Tree looks to open 190 Dollar Tree stores and 400 Family Dollar stores and also to renovate 800 Family Dollar stores. The management also looks to drive sales growth through an initiative to revise its pricing strategy with the introduction of a $1.25 price point to many of Dollar Tree's products. Baptista Research looks to evaluate the different factors that could influence the company's price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology. In this report, we have carried out a fundamental analysis of the historical financial statements of the company. We also have a dedicated analysis of the company's Environmental, Social, and Governance (ESG) risk scores in order to evaluate the sustainability risk. We have added reasonable forecasts of the annualized income statement and cash flows and carried out a DCF valuation of the company using its Weighted Average Cost of Capital (WACC) to determine a forecasted share price.
