NEW YORK (TheStreet) -- Shares of Dollar Tree Inc. (DLTR - Get Report) are lower by 3.62% to $66.12 in pre-market trading on Tuesday morning, following a ratings downgrade to "hold" from "buy" at Deutsche Bank.

The firm said it reduced its rating on the discount variety store operator based on a valuation call.

Deutsche Bank said Dollar Tree's current valuation "captures favorable sentiment and strong fundamentals,' Benzinga.com reports.

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Dollar Tree is currently in the process of attempting to take over rival discount store Family Dollar Stores Inc. (FDO) . There is a meeting scheduled for December 23 in which Family Dollar is due to vote on the deal, Bloomberg reported.

Separately, TheStreet Ratings team rates DOLLAR TREE INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate DOLLAR TREE INC (DLTR) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, growth in earnings per share, increase in net income and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 3.6%. Since the same quarter one year prior, revenues rose by 11.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • DOLLAR TREE INC has improved earnings per share by 10.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, DOLLAR TREE INC increased its bottom line by earning $2.75 versus $2.70 in the prior year. This year, the market expects an improvement in earnings ($3.10 versus $2.75).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Multiline Retail industry average. The net income increased by 6.1% when compared to the same quarter one year prior, going from $125.40 million to $133.00 million.
  • The current debt-to-equity ratio, 0.48, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.47 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • You can view the full analysis from the report here: DLTR Ratings Report

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