Dollar Tree's (DLTR) sale of its Family Dollar business strengthens its long-term earnings potential, UBS Securities said in a note emailed Thursday. The divestment allows Dollar Tree to focus on its core business, which UBS believes is not fully reflected in the stock's valuation.

The company agreed to sell Family Dollar to Brigade Capital Management and Macellum Capital Management for about $1.01 billion, with expected net proceeds of about $804 million. The deal, which remains subject to regulatory approval, is expected to close in Q2.

UBS added that Dollar Tree's multi-price 3.0 rollout should provide a multi-year tailwind for comps, with plans to expand it to another 2,000 stores in 2025. A favorable calendar shift, including an earlier Easter and easier holiday comparisons, should also support near-term sales trends.

The brokerage estimates the company to have $2.7 billion in cash by the end of 2025, assuming it repurchases $1 billion of its shares. Analysts at the firm also noted that, even in a downside scenario where unmitigated tariffs weigh on earnings, the stock is trading below its historical valuation levels.

The brokerage concluded that Dollar Tree's divestment, improving comps, and a strong catalyst path outweigh tariff risks, making the stock's setup favorable.

UBS has a buy rating on the company's stock with a $95 price target.

Price: 75.80, Change: +6.59, Percent Change: +9.52