Dollar Tree (DLTR) faces some market uncertainty over its recent financial guidance, but the outlook remains constructive, highlighting a "significant opportunity" for the stock, UBS Securities said in a report emailed Thursday.

Initial concerns arose from a projected 45% to 50% decline in Q2 earnings, due to an estimated $70 million in tariff costs and $40 million in increased labor expenses for re-stickering products. However, the investment bank says the situation is now "much more clear."

UBS analysts expect Dollar Tree to offset these headwinds through price adjustments and recently negotiated, more favorable freight contracts, and its improved execution and multi-price point strategy are also seen as positives, the report said.

UBS projects Dollar Tree could earn "$6-$7 in '26E" due to declining labor costs, ongoing freight benefits, and contributions from its transition services agreement with Family Dollar, the report said, adding that the retailer's strong balance sheet, with over $1 billion in cash and projected free cash flow, offers flexibility for investments and share buybacks.

While some express caution about the second half's outlook, the prevailing view is that the "risk-reward for the shares is significantly skewed to the upside." For 2025, Dollar Tree expects adjusted earnings per share between $5.15 and $5.65, with total sales of $18.5 billion to $19.1 billion, the report said.

UBS has a buy rating on Dollar Tree, with a price target of $108.

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