UPDATE: Deutsche Bank Downgrades Dollar Tree (DLTR) to Hold (correction)

Deutsche Bank analyst Krisztina Katai downgrades Dollar Tree (NASDAQ: DLTR to a Hold rating (from Buy) and a price target of $102.00 (from $129.00).

The analyst comments "We are downgrading shares of Dollar Tree to Hold from Buy and lowering our PT to $102 from $129, as we now see more balanced risk/reward, especially with renewed concerns around building inflationary pressures. We remain long-term believers in DLTR's story including the ongoing turnaround at Family Dollar, however, we are incrementally concerned around accelerating cost pressures from both freight and wages, particularly in light of the Dollar Tree banner's fixed $1 price point which limits its ability to absorb higher costs through price increases, putting margins at risk. The company introduced 2021 EPS guidance on 5/27 that fell short of sell-side models by 8% at the midpoint, including $0.70-$0.80 of pressure built in for freight, and with the sequential worsening in ocean freight rates since the 1Q release we are no longer confident that negative earnings revisions are behind us. While management points to DLTR's 35-year history of operating at a $1 price point through multiple inflationary and deflationary periods, we highlight that Dollar Tree's operating margins have been under pressure for a number of years. Our analysis of ocean freight and domestic trucking rates point to an acceleration in cost pressures, which could likely sustain throughout the year. In addition, the labor market remains tight and highly competitive (DLTR pays its hourly workers in the range of $11-$12). Admittedly, the expansion of Dollar Tree Plus (multi-price point) could serve as a positive offset, but at this point we do not foresee the rollout accelerating before 2023."

For an analyst ratings summary and ratings history on Dollar Tree click here. For more ratings news on Dollar Tree click here.

Shares of Dollar Tree closed at $98.77 yesterday.

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