Dollar Tree (DLTR), Dollar General (DG) Watched Closely at Piper Sandler

It's a big week for earnings reports, as three companies—Dollar Tree NASDAQ: DLTR, Dollar General NYSE: DG, and Costco NASDAQ: COST—are all poised to report earnings on Thursday. Yet of these three, two, in particular, are drawing particularly careful attention from Piper Sandler. Which two are getting the third degree on earnings? I'll give you a hint: everyone that has a unit of currency in the name.

The Dollars Report Earnings, and Piper Sandler is Piqued

Certainly, all three are getting some degree of attention going into earnings season. They're each going to serve as likely barometers of economic progress going forward, though in which direction is unclear. After all, we're talking about discount retailers here; people don't tend to shop heavily at discount retailers if they're feeling flush and their economic outlook is bright unless they actually need to buy a five-gallon bucket of steak sauce.

Piper Sandler, meanwhile, is putting a little extra weight and attention on the discount retailers, because it's a pretty safe bet they'll continue to do well the farther we get into 2020. With the economy just starting to come back online in a lot of places, it's not surprising to see the discounters pick up steam first. So what makes Dollar General and Dollar Tree particularly attractive?

It's a big week for earnings reports, as

The Tree is Sprouting, and the General is Winning

Dollar Tree's particular draw, according to Piper Sandler's chief market technician Craig Johnson, was that it's recently started turning around a downward trend in its figures. It's seeing an upside around 14% as it makes a move back toward its 50-day moving average, giving it a shot to reach $93 a share in the near term. A positive earnings report on Thursday, meanwhile, will likely only serve to help reach that figure. Given that the stock is trading around $84.84 as of this writing—and showing a steady climb in the process—that looks a little more likely than ever.

Meanwhile, Dollar General is off winning campaigns like Schwarzkopf in the first Desert Storm. Johnson pointed out that Dollar General is in what's called an “HLTR”, or “high-level trading range.” This is mostly indicative of consolidation at work, and if the range ever hits $185, then that's a good sign for a whole new leg up. Given that the stock is currently trading at $181.97—down a smidge off earlier highs today—hitting $185 isn't really that outlandish.

Johnson's assessment of Dollar Tree has some support from other quarters; Gradient Investments' president, Michael Binger, notes that Dollar Tree's valuation is as inexpensive as its products, though notes that its overall product mix is something of a limiting factor. Binger notes that Dollar Tree doesn't stock a lot of food or other essential goods, and instead focuses more on seasonal favorites, which kind of limits them. However, recent moves to expand in the essentials space—recently-installed coolers in many stores help—should give Dollar Tree extra room to branch out.

Whither Costco?

Costco is the third company reporting earnings on Thursday, and thanks to the pandemic and the related stock-up frenzy exercised therein, it's a pretty safe bet that we're going to see some big numbers. But why isn't Piper Sandler watching that one so closely? The answer may come from Binger, who disagreed with Johnson on Dollar General, noting that it and Costco's valuations are a bit stretched.

Costco was likely a beneficiary of the aforementioned stock-up frenzy. With the economy starting to fall back to a semblance of normalcy—much more in some places than others—the need for a stock-up retailer is likely to fall off. First, people are already likely pretty stocked-up from the frenzies in April and into May. Second, with even the states still in strongest lockdowns allowing for “essential travel”, and many states well beyond that, it's clear that people aren't going to need pantries stocked for months right now. They're already stocked from shopping a month ago, so now it's mostly maintaining the stocks already in place.

Dollar General is a bit of a tossup. Looking for a new leg up in this environment may be a bit of a long shot. Costco's time may have come and gone...right back to normal. But Dollar Tree, with its improving product line, modest stock pricing, and growing analyst consensus may have a lot of room to grow. That's undoubtedly why Piper Sandler is looking at Thursday's returns so closely—a jump in earnings for the Dollars may mean a nice upward trend for the stock too—and why you probably should be too.