Ollie's Bargain Outlet and Dollar Tree raised at Goldman Sachs on consumer concerns

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Ollie's Bargain Outlet and Dollar Tree raised at Goldman Sachs on consumer concerns

Analysts at Goldman Sachs upgraded shares of Dollar Tree (NASDAQ: DLTR ) and Ollie's Bargain Outlet (NASDAQ: OLLI ) to Buy in a note Tuesday.

The analysts told investors that the firm is repositioning its ratings as it leans into discount retailers with attractive valuations, noting that in the last several weeks, it has seen a deterioration in investor sentiment around several retail names.

The deterioration is due to concerns around the overall health of the consumer as student loan payments resume and as gas prices tick higher, according to Goldman Sachs.

The firm upgraded DLTR as it sees "strong earnings growth potential supported by continued market share gains from improving traffic trends with sticky new customers." In addition, the firm believes DLTR has an improving discretionary cash flow outlook for lower and middle-income consumers in 2024, as well as better shopability/in-stocks after recent investments.

Furthermore, the analysts pointed to lower freight costs, which they feel should start to become a meaningful tailwind in 2H23 and the company's multi-year turnaround efforts. The DLTR price target was lowered to $137 from $150 per share.

For OLLI, which was assigned a new $83 price target, up from $75, Goldman Sachs expects tailwinds from the favorable closeout environment to remain in the near term.

"While the company's growing scale drives a virtuous cycle of improved procurement opportunities and sales growth, and margins are set to return to the targeted ~40% range," the analysts said. "We also note that relative to other high-growth specialty retail names, OLLI's valuation still remains attractive despite returning ~58% year to date."

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