Analyst Warns of Inflation Pressures for Dollar Tree

A shift in sentiment could put even more pressure on Dollar Tree stock

Deputy Editor
Jun 24, 2021 at 9:46 AM
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Piper Sandler has slashed its rating on discount retailer Dollar Tree, Inc. (NASDAQ:DLTR) to "neutral" from "overweight," and lowered its price target to $102 from $117 this morning. The analysts is exercising caution on the stock due to mounting pressure from inflation as freight rates rise. Piper Sandler also predicted a $1 per hour pay raise for store associates, which would mean a $215 million headwind, adding that its low-income wage growth and total wage growth, as well as the job quite rate in the retail sector are both at historically significant levels. 

The shares of  DLTR are down 1% to trade at $100.50 in response, moving even further from their recent rejection level at $102, which has kept a lid on the stock since it suffered a massive post-earnings bear gap in late May. While the 320-day moving average captured the worst of  this pullback, the stock is now deepening its 6% year-to-date deficit. 

Should this negative price action continue, it could lead more members of the brokerage bunch to join Piper Sandler with downgrades and/or price-target cuts. Coming into today, seven called DLTR a "buy" or better, and six said "hold" or worse. Meanwhile, the 12-month consensus price target of $117.74 is a 16% premium to last night's close. 

An unwinding of optimism in the options pits could also put pressure on DLTR. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security sports a 10-day call/put volume ratio of  4.51, which stands higher than 77% of readings from the past year. This implies a much healthier-than-usual appetite for long calls of late. 

Echoing this, the stock's Schaeffer's put/call volume ratio (SOIR) of 0.34 stands in the extremely low second percentile of its 12-month range, meaning short-term options traders have rarely been more call-biased. 

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