Discount retailer Dollar Tree Inc. (DLTR: sentiment, chart, options) was slashed from "outperform" to "market perform" today at Friedman Billings Ramsey & Co. Nevertheless, the shares of DLTR rallied to a new annual high of $42.89 right out of the gate this morning.

The downgrade from analyst Karen Short was based purely on valuation, she said in a note to clients. Since Short gave the stock an "outperform" rating in February, DLTR has rallied more than 60%. "As much as we like the Dollar Tree story, including management's conservatism, the company's competitive positioning, and the concept in general, at Friday's close of $42.30, we feel it is only prudent to recommend investors take profits because we think the stock is fairly valued at these levels for now," commented Short.

The analyst maintained her $42 price target on DLTR, implying that she expects the security to pull back slightly from today's new high. Her theory could prove correct sooner rather than later, as the equity gears up for a test of potential double-top resistance near the 44 region.

Downgrade aside, this morning's surge in Dollar Tree shares seems to be prompted by a rally in the broader market, with the Dow Jones Industrial Average up 273 points in the first 15 minutes of the session.