No. of Recommendations: 3
Family Dollar is being sold for $132,066 per store. Calculated by dividing $1.07B by 2976 stores. Applying the same valuation (this is for grins and giggles purposes only, not a totally germane comparison of DG to FD stores) yields a calculated value for DG of $2.6B, an 86% reduction to DG's market value today of 18.63B. Family Dollar apparently badly wanted out of this market space.
I sold our DG holdings in November and put the proceeds into DLTR. My back of the envelope calculations favored DLTR over DG even without FD. You get the feeling FD was a big suck on DLTR's management's attention/focus for DLTR to take this kind of butt kicking valuation for FD. Inverting this information calls into question the valuation the stock market has assigned to DG. The stock market is valuing DG at a $946,304 valuation per DG store, yet a private equity firm through a bidding process has valued FD at $132,066 per FD store (86% less than DG's stock market assigned valuation per store).
Remember the age old comment about a dog chasing cars? What does the dog do if it were to catch the car? The two PE firms bid (chased after) Family Dollar and they caught it with a $1.007B bid. What on earth will they do with Family Dollar? Operate it? Sell it in pieces? What? What?
You've got to think it was terribly wrenching for DLTR senior management to sell Family Dollar as this kind of move involves lots of people and various stake holders. Apparently it was so wrenching they sold FD for essentially 12.5 cents on the original dollar invested in 2015 and this does not count the likely several Billion more dollars invested into FD over the past nine years since the acquisition. My guess is DG will cherry pick desirable FD stores from the PE owners and FD will slide under the waves during late 2025. The PE owners make a quick buck, DG eliminates a competitor in many markets and DG's stock gets healthy again in 2026 as the numbers improve from increasing DG's store count, by say, 5000 stores bought at dirt cheap prices. All assumptions on my part. Meanwhile, Dollar Tree now happy and focused management team keeps the pedal floored in growing its Dollar Tree franchise in its urban markets and more unique product mix market space(s).
Would love to hear your thoughts about store valuations, management focus and anything else you have identified involving DG and DLTR.
Uwharrie
No. of Recommendations: 3
Correction: Google says there are 7,625 Family Dollar stores. Thus the reference in above post to the idea that, say, 5,000 of FD's stores would possibly be purchased from the PE firms assuming 2/3 of the 7,625 stores are likely additive to DG's market footprint.
Uwharrie
No. of Recommendations: 5
TBH, this is a dumb way to value DG. The ability to generate profits from their stores is MUCH more important.
I am confident they have a path to $6.00 in EPS, and think 15x - 20x is what I would call fair value on that multiple (they are at 17x on a TTM level currently). So I generally think its very likely to see $100 - $120 / share in the next 18-24 months; with very little downside from current levels.
tecmo
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