Dollar Tree (DLTR) and KLX Inc. (KLXI) Report Strong Quarterly Results
Dollar Tree (DLTR) reported second-quarter results this morning (January year-end). Earnings per share (EPS) of $0.98 surpassed all analysts’ estimates, which were within a range of $0.84 to $0.90. The stock rose as much as 11.5% this morning to 82.88, and is currently trading up about 8% between 80 and 81.
Operating margins rose, and taxes and SG&A expenses fell. In addition, Family Dollar stores, wholly owned by Dollar Tree, produced a 1.0% increase in same-store sales, which had previously been a key area of concern for the market.
The company guided full-year EPS expectations to a range of $4.44 to $4.60, vs the current Wall Street consensus estimate of $4.46, putting this year’s EPS growth rate at about 19.3%. Investors should expect a slew of bullish research reports and rising earnings estimates.
My recent concern has been that DLTR is overvalued based on next year’s numbers. On the bullish side, next year’s earnings estimates will likely rise a bit on today’s news of an unexpectedly strong corporate outlook. In addition, Dollar Tree has the best EPS growth of any comparable retailer. Professional investors who have an obligation to diversify into retail stores have very few attractive stocks to select from in the age of competition from Amazon. Their focus will invariably land on DLTR. Therefore, I will continue to keep the stock in the portfolio for additional upside with a Buy recommendation.
In the very short-term, we could see DLTR pull back a bit after today’s big run-up. Therefore, very short-term traders should sell today. Consider any pullback a buying opportunity. The best-case scenario is that DLTR could rise to the mid-90s in the coming 12 months, where it last traded in August 2016. Buy.
KLX Inc. (KLXI) is a small-cap stock in the aerospace and energy services industries. KLX reported second-quarter 2018 EPS of $0.73 yesterday (January year-end), on target with analysts’ estimates. Revenue came in slightly higher than expected. Importantly, the company projected full-year 2018 EPS of $3.00, which represents a 186% increase over last fiscal year’s EPS of $1.05. Analysts will be tweaking their 2019 EPS estimates, which will probably reflect 25% to 30% EPS growth. The stock is significantly undervalued, with a 2018 P/E of 15.5.
Despite the good earnings report, the stock fell yesterday, due in no small part to Reuters misreporting the EPS number. (Reuters quoted the GAAP EPS number of $0.40 rather than the non-GAAP $0.73 EPS number.)
KLXI bounced at 46.5, which is the same place that KLXI fell to in June. I anticipate seeing KLXI rebound to 52, as it has done repeatedly this year, with an eventual breakout above that price point. Investors should therefore consider the price pullback to be a buying opportunity. Strong Buy.