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Dollar General Downgraded to Sector Perform From Outperform by RBC as Growth Expected to Slow

05/12/2021 05:02

08:50 AM EDT, 05/12/2021 (MT Newswires) -- Dollar General (DG) received an investment rating downgrade Wednesday to sector perform from outperform from RBC Capital Markets as the firm sees a more challenging landscape for the discount retailer.

RBC's new price target on Dollar General's stock is $207 per share, up from $206. Despite the increase, the boosted target is below the stock's Tuesday closing price of $213.90. The shares slipped 1.7% to $210.30 in recent Wednesday pre-market trading.

"While we believe the company continues to execute at a high level, the improving employment environment may reduce trade-down/in activity even as rising food and gas prices squeeze their existing customers," RBC analysts said in a note to clients. "As stimulus benefits fade, we think Dollar General's growth may slow more/faster than some of our other retailers, which may make it difficult for DG shares to outperform."

The firm added: "We still expect sales/earnings upside in the near term helped by the latest round of stimulus, but with the stock's recent re-rating (up over 20% since mid-March) and what may become a less favorable economic environment, we are moving to the sidelines on DG."

RBC noted it believes a surge in Dollar General's 2020 sales had been primarily due to spiking unemployment causing consumers to trade down in where they were shopping. However, employment rates have improved significantly since then.

The firm believes later strength for Dollar General came from multiple rounds of stimulus. "As a result, we believe that Dollar General's strong sales may be less durable than that of several of our other companies, which may make it more difficult for DG shares to outperform," it added.

On average, analysts polled by Capital IQ have an investment rating of outperform on the stock, with price targets ranging from $125 to $260.

(MT Newswires covers equity, commodity and economic research from major banks and research firms in North America, Asia and Europe. Research providers may contact us here: https://www.mtnewswires.com/contact-us)

Price: 210.30, Change: -3.60, Percent Change: -1.68