Dollar Tree (DLTR) Moves 14.3% Higher: Will This Strength Last?

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Dollar Tree (DLTR) shares rallied 14.3% in the last trading session to close at $129.23. This move can be attributable to notable volume with a higher number of shares being traded than in a typical session. This compares to the stock’s 13.9% gain over the past four weeks.

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The Dollar Tree stock moved higher after the Wall Street Journal reported that an activist investor firm Mantle Ridge acquired a huge stake in the company. Mantle Ridge bought $1.8 billion stake in Dollar Tree and plans to push for changes in the company to aid shareholder value. The activist investor intends to make changes in the pricing strategy at the company’s Family Dollar chain, which has been lagging since it was acquired in 2015. The activist investor plans to nominate Richard Dreiling, who previously served as rival Dollar General’s CEO, to Dollar Tree’s board of directors to facilitate the strategy development. Mantle Ridge also suggested Dollar Tree to roll out its new multi-price strategy to more of its stores.

This discount retailer is expected to post quarterly earnings of $0.95 per share in its upcoming report, which represents a year-over-year change of -31.7%. Revenues are expected to be $6.42 billion, up 4% from the year-ago quarter.

Earnings and revenue growth expectations certainly give a good sense of the potential strength in a stock, but empirical research shows that trends in earnings estimate revisions are strongly correlated with near-term stock price movements.

For Dollar Tree, the consensus EPS estimate for the quarter has remained unchanged over the last 30 days. And a stock’s price usually doesn’t keep moving higher in the absence of any trend in earnings estimate revisions. So, make sure to keep an eye on DLTR going forward to see if this recent jump can turn into more strength down the road.

The stock currently carries a Zacks Rank 3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here >>>>

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