By Dhirendra Tripathi
Investing.com -- Dollar Tree (NASDAQ:DLTR) stock was trading 1.5% lower in Monday’s premarket following a downgrade by Deutsche Bank to ‘hold’ with a target of $102.
The new price set by analyst Krisztina Katai is 21% lower from the previous target of $129 and just 3.3% higher from the stock’s Friday close of $98.77.
According to Katai, while the brokerage continues to have faith in the company for the long-term but with inflationary pressures building up, the risk-reward doesn’t really favor the stock. She blamed rising freight and wage costs for the pressure that Dollar Tree banner's fixed $1 price point would come under.
Shipping and freight costs have multiplied in the last one year as COVID-19 disrupted supply chains and cities came under lockdowns. Crude touched multi-year highs and trucking costs rose. The phenomenon could persist as demand comes back and economies recover.
Dollar Tree’s tight pricing limits the discount chain’s ability to absorb higher costs through price increases, putting margins at risk.
The analyst pointed out that Dollar Tree's operating margins have been under pressure for a number of years.
The analyst said the expansion of multi-price-point Dollar Tree Plus could positively offset the issue but ruled out any accelerated rolling out of the format before 2023.