(By Balachander) Deutsche Bank (DB) downgraded its rating on shares of Dollar Tree Inc. (NASDAQ:DLTR) to "Hold" from "Buy" and reduced price target on the stock to $54 from $108, citing less compelling risk/reward at current levels.
"While we remain long-term believers in the Tree's story and maintain high respect for its talented management team, shares have reached our $54 PT after multiple years of outperformance," DB analyst Charles Grom wrote in a note.
"Dollar Tree has run 50% since we launched coverage 9/14/11 and has achieved our $54 price target (split-adjusted), which is based on 18x our 2013 EPS of $3.02. DLTR currently trades at 21.5x our 2012 EPS," the anlyst said.
Grom noted the stock has enjoyed a tremendous stretch of outperformance, up 74% in 2010, 47% in 2011, and another 28.7% YTD.
After witnessing the reaction to some recent reports within retail/consumer stocks that have performed well (including BBBY, ORLY, AAP, NKE), it is clear that any hint of a slowdown in business momentum will be punished severely by today's glass half-empty market, the analyst said.
"With this in mind, given the lack of a clear NT catalyst and after some less encouraging June color from Family Dollar (FDO) (e.g. more pronounced pay-cycle swings/our view that June SSS below 5-7% view); we feel it's better to play it safe than sorry," Grom wrote.
Chesapeake, Virginia-based Dollar Tree operates discount variety stores in the United States and Canada. As of April 28, 2012, it operated 4,451 stores in 48 states and 5 Canadian Provinces.
The stock, which has been trading in the 52-week range of $30.00 to $56.81, lost 5.06% to trade at $51.09 on Monday.