The firm said it began coverage on the party and celebration supplies store based on its belief that Party City's vertical business model should see an increase in leverage as the company gains more shelf share.
Shares of Party City are gaining by 1.88% to $22.21 in pre-market trading on Tuesday morning.
"We view the company's vertically integrated business model as its primary investment positive because it drives the majority of the margin benefit on both the retail and wholesale sides," Deutsche Bank said in an analyst note.
"The ultimate benefit occurs when PRTY is able to manufacture, wholesale and sell goods through its Party City stores. Here PRTY realizes three profit pools - called 'triples' - rather than the typical single profit pool."
"Triples currently account for 22 percent of retail sales and we believe PRTY has the opportunity and strategy to increase this penetration to 40 percent to 45 percent over time as it acquires additional manufacturing capacity and grows its own Share of Shelf," the note continued.PRTY data by YCharts