Dollar General Corp (NYSE:DG) stock fell 2.84% (As on June 5, 11:40:50 AM UTC-4, Source: Google Finance) after two Wall Street firms downgraded the company after the company reported a Q1 EPS and revenue miss.
Piper Sandler downgraded the company to Neutral from Overweight and cut its price target to $178.00 from $275.00 on somewhat inexplicable sales/comp weakness, lack of conviction for a near-term rebound, and concerns that guidance wasn’t reduced enough. While noting that Dollar General highlights well-known macro headwinds, Piper Sandler cannot explain why it is seeing a more material impact (and lack of trade-down) versus other retailers serving lower-income customers.
Meanwhile, Atlantic Equities downgraded the company to Neutral from Overweight with a price target of $170.00 following the commentary on the most recent changes to consumer behavior. The firm highlighted that Q1 showed a steeper rate of change in Dollar General’s core customer base.
Furthermore, Morgan Stanley also downgraded the discount retailer’s stock to equal weight from overweight on Sunday, citing its “thesis-shifting quarter.” When reporting quarterly financials last week, the company said a challenging economic environment prompted on a miss on earnings and a cut to full-year guidance. The firm warned there are too many uncertainties on the discounter on macroeconomic factors, market share, investments, execution, capital allocation, and near-term EPS power. Analyst Simeon Gutman and team believe DG’s value proposition in its core rural markets is still largely intact, even with some modest cracks emerging, but does not see enough catalysts in the near term to stay bullish. The analyst cannot confidently recommend the stock here given the growing uncertainties and unknowns to the DG story and catalyst path. Unlike in past moments when DG underperformed but presented attractive “buy-the-dip” opportunities (’16 macro headwinds, ’17 investment cycle, ’19 investment cycle), this period of underperformance reflects several, potentially interrelated cross-currents at once that likely inhibits a quicker rebound in the equity in the next 6-12 months.
Morgan also sees increased risk to the EPS estimates on Dollar General with more price investments and labor inflation potentially in the mix. Morgan Stanley has therefore cut its price target on Dollar General to $180 from $235.
Meanwhile, for fiscal 2023, Diluted EPS is expected to be in the range of an approximate 8% decline to flat, compared to its previous expectation of growth of approximately 4% to 6%.