UBS Cuts Price Target on Dollar General (DG) to $91; Reiterates Buy
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UBS maintained a Buy rating on Dollar General (NYSE: DG), and cut the price target to $92.00 (from $101.00), following the company's 2Q earnings report.
Analyst Michael Lasser commented, "While it was convenient for the market to try and pin DG’s slower SSS (-200 bps below the 2.7% cons) on a share shift to WMT, we think that many factors are play. It’s important to keep in mind that Food at Home CPI deflation reached its most intense level since Jan. 2010 and there were further reductions in SNAP benefits (even though this accounts for 5% of DG’s sales). These two factors accounted for 60-70 bps of comp headwinds alone. Also, DG wasn’t alone in seeing a comp slowdown from 1Q to 2Q with HD, LOW, TSCO, ORLY, AAP and WSM all witnessing sequential softness and these retailers are hardly the target of WMT’s price investments. Thus, we expect that DG’s comp can accelerate as the overall spending environment improves. In the meantime, we think the stock has already priced in a lot of risk."
Shares of Dollar General closed at $75.61 yesterday.
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