While most of the recent focus in the discount retail sector has been on competing bids for Family Dollar Stores, Inc. (NYSE:FDO), analysts are already looking past the hassle and like what they see in Dollar Tree, Inc. (NASDAQ:DLTR)’s plan for the future.

Not acquiring Family Dollar lets Dollar Tree focus on its main business

“Putting aside the potential acquisition, we see an additional change in the business model, as we now think the company may be making strategic margin investments to maintain traffic growth at the single-price-point Dollar Tree stores,” writes BMO Capital Markets analyst Wayne Hood, who rates Dollar Tree, Inc. (NASDAQ:DLTR)’s Market Perform with a $59 price target (currently $54.26).

Dollar Tree DLTR

Hood points out that if Dollar Tree, Inc. (NASDAQ:DLTR) does acquire Family it will jump from about 5200 stores to more than 13,000 immediately, but that the single-price-point that defines the company’s retail strategy will drop from 96% of its store base to just 38%, marking an enormous change in strategy (this is part of the reason some analysts have argued that Family Dollar Stores, Inc. (NYSE:FDO) and Dollar General Corp. (NYSE:DG) are a better strategic fit than Dollar Tree and Family Dollar).

Instead, he sees Dollar Tree, Inc. (NASDAQ:DLTR) changing its product mix to keep hitting strong comp numbers and driving store traffic. Since they don’t have any price flexibility, that probably means taking a gross margin hit and facing some short-term headwinds, but Hood believes this is the right course for long-term growth.

The outcome of Family Dollar drama can be seen as an option in Dollar Tree valuation

Raymond James analyst Dan Wewer agrees that Dollar Tree, Inc. (NASDAQ:DLTR) will do what’s necessary to keep pushing comp store sales, and that it won’t be able to keep expanding gross margins though he doesn’t necessarily see GM contraction like Hood does. Wewer rates Dollar Tree a Strong Buy with a $65 price target and argues that no matter what happens with the acquisition drama, Dollar Tree comes out as a winner. He doesn’t include the outcome in his valuation, treating it as an option without much downside.

“DLTR’s consensus FY15 EPS estimates will likely increase 5% -7% if it completes the FDO acquisition. On the other hand, if the deal does not go through Dollar Tree will receive a $305M bust up fee, which it could use to acquire DG/FDO stores that the FTC requires to divest,” says Wewer.