Here’s Why Heartland Advisors Remains Optimistic in Dollar Tree (DLTR)

Heartland Advisors, an investment management firm, published its “Heartland Mid Cap Value Fund” fourth-quarter 2021 investor letter – a copy of which can be seen here. Security selection was mixed with holdings in Materials and Consumer Discretionary bolstering returns; however, the portfolio couldn’t overcome weakness in Financials and Information Technology, and the Strategy lagged the Russell Mid Cap® Value Index for the quarter.  The portfolio finished the year up more than 20% and kept pace with its benchmark. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.

Heartland Mid Cap Value Fund, in its Q4 2021 investor letter, mentioned Dollar Tree, Inc. (NASDAQ: DLTR) and discussed its stance on the firm. Dollar Tree, Inc. is a Chesapeake, Virginia-based discount store company with a $28.9 billion market capitalization. DLTR delivered a -8.56% return since the beginning of the year, while its 12-month returns are up by 26.39%. The stock closed at $128.49 per share on January 27, 2022.

Here is what Heartland Mid Cap Value Fund has to say about Dollar Tree, Inc. in its Q4 2021 investor letter:

Buck up. The resiliency of the consumer has been a driving force over the past 18 months as the economy rebounded from early COVID-19 lows. While inflation may be a challenge to spending habits in the new year, the portfolio benefited from holdings that we believe are less economically sensitive and should continue to perform as government stimulus payments fade. Dollar Tree Inc. (DLTR) provides an example of our approach.

Dollar Tree owns two brands, Dollar Tree and Family Dollar, each operating roughly 8,000 locations in the United States and Canada. The Dollar Tree brand has historically operated a true dollar store with its locations offering products at the fixed $1 price point.

The Family Dollar unit was acquired in 2015 and sells mostly daily essentials to lower-income customers. The retailer was an underperforming asset when Dollar Tree acquired the business. Over the past six years, management has invested significantly in remodeling Family Dollar stores and improving merchandise to raise profit margins closer to those of industry peers.

Shares of Dollar Tree were up to close out 2021 as investors applauded management’s move to raise the price point of goods sold at Dollar Tree to $1.25, which is expected to offset inflation pressures for the company and help it maintain margins on the goods it sells. Additionally, as headwinds have begun to emerge for consumers, the company’s mix of products, in our view, should produce more resilient sales among its cost-conscious customers.

As shares have appreciated, we’ve trimmed the portfolio’s stake in the business to manage exposure. However, we continue to maintain a position on the belief that shares are still priced at a discount to their historical average based on our 2022 earnings estimates.”

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Our calculations show that Dollar Tree, Inc. (NASDAQ: DLTR) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. DLTR was in 38 hedge fund portfolios at the end of the third quarter of 2021, compared to 42 funds in the previous quarter. Dollar Tree, Inc. (NASDAQ: DLTR) delivered a 19.24% return in the past 3 months.

In August 2021, we also shared another hedge fund’s views on DLTR in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.

Disclosure: None. This article is originally published at Insider Monkey.