- Deutsche Bank says there is "limited upside" for investors in the department store space.
- Shares of Sears, Kohl's, Dillard's and others all fell Monday after the report.
- Most department store chains are slated to report first-quarter earnings next week.
U.S. department store chains' stocks tumbled Monday after Deutsche Bank issued a new report saying there is "limited upside" for investors in the sector.
"[W]hile Holiday marked a solid improvement across the group, we think valuation is now ahead of itself as we believe fundamental upside is limited," analyst Paul Trussell said.
Shares of Sears Holdings were down more than 5 percent by midday. Kohl's and Dillard's shares were both down about 4.5 percent, while Macy's and J.C. Penney shares were falling roughly 3.7 percent. Nordstrom's stock was down 2 percent.
Trussell said that since December, the department store group excluding Penney has seen shares climb roughly 24 percent, while the S&P 500 has only gained about 1 percent over the same period.
"Furthermore, we have concerns that an earlier Easter (4/1 this year vs. 4/16 last year) combined with unfavorable weather in March and April may have pressured comp sales during the first quarter," he said.
The one outlier, according to Deutsche Bank, could be Nordstrom, which has shown its business is "more insulated from weather patterns."
Instead of department store operators, the firm said it prefers retail brands, especially those that have pivoted and are selling more directly to consumers. That list includes Calvin Klein owner PVH, Michael Kors and Lululemon.
Also on Monday morning, Telsey Advisory Group initiated coverage on Amazon at outperform, saying the e-commerce giant should capture nearly 10 percent of total retail sales by 2020. Amazon is already on track to become the No. 1 apparel retailer in the U.S., according to Morgan Stanley.
Most U.S. department store chains, including Macy's and J.C. Penney, are slated to report earnings next week.
— CNBC's Michael Bloom contributed to this report.