One of the pandemic's very few winners had to be Dollar General (NYSE:DG). The company's “essential retail” status served it well, and its attractive item pricing kept shoppers coming in and picking up their various necessities throughout the worst of COVID-19. Now, the company recently got a fresh tailwind from Atlantic Equities, who gave Dollar General a little extra boost going forward.
Bolstered by a Range of Factors
Atlantic Equities recently issued an upgrade on its perception of Dollar General, taking the company from “neutral” to “overweight,” which is effectively a “buy” recommendation. The reports surrounding the move noted that Dollar General was likely to benefit from a couple of key factors, including the incoming stimulus checks as well as its ongoing gains in overall market share.
Atlantic also stepped up its price target on the company, hiking it to its latest target of $243 per share. Given that Dollar General currently trades at $191.96, Atlantic is expecting a little room to grow in the company's bottom line. Regardless of the motivations, the gain in analyst expectations here was sufficient to give Dollar General an extra 1% in pre-market trading, reports noted.
Not Exactly Out on a Limb
The move from Atlantic gave Dollar General a little extra encouragement in the field, but based on our latest research, the added encouragement from Atlantic was really little more than just that: a little extra encouragement. Dollar General has been ranked a consensus “buy” for the last six months.
The consensus has been increasingly bullish as well, until recently. Six months ago, the company had four “hold” ratings, 17 “buy” ratings, and one “strong-buy” rating making up its consensus. Three months ago, that improved to four “hold”, 16 “buy” and two “strong-buy”. Further improvement hit a month ago as the company went to two “hold”, 18 “buy” and two “strong-buy”. This would prove to be its most bullish outlook, however, as for today, the company stands at three “hold”, 17 “buy” and two “strong buy.”
The price target, meanwhile, has also been on an upward trend. Six months ago, it sat at $212.70 before jumping up to $225.26 three months ago. A month ago featured another upward jump in the price target, going to $229.35, and today, it sits at $231.13. Though the leaps are getting smaller in range with every jump, the fact that the price target has been trending upward for the last six months continuously is definitely a point in Dollar General's favor.
Niche Player or Doomed Prospect?
There's a lot to like about Dollar General. If there weren't, it wouldn't enjoy the kind of support it does in the analyst quarter. It's definitely made a lot of headway with tons of new store construction; Dollar General locations seem to be about the only new kind of store that crop up in a lot of small towns, particularly those stores with a major brand name connected to them. The recent growth in offering fresh produce and perishables doesn't hurt either, especially in small towns that have since lost a grocery store option.
However, there are issues here that a potential investor needs to address. Yes, Dollar General did quite well through the pandemic by virtue of being one of a few kinds of stores allowed by a government mandate to stay open. Here's the immediate problem, though: Dollar General is not the only store in its class. It's also got Family Dollar (NYSE:FDO) and Dollar Tree (NASDAQ:DLTR) to be concerned about. Of course, Dollar General has been the biggest expansion story of the three, and annexed a lot more territory, but rapid growth does tend to bring a few problems of its own like issues of scale.
Not only does Dollar General have physical competitors, it also has to take on the online retail market as well. Substantially expanded since the early days of COVID-19, online retail now encompasses a lot of formerly-physical-only brands as well as longtime retail boogeyman Amazon (NASDAQ:AMZN), which has ruled retail for much of the last year.
Just to round it out, there's one more problem for Dollar General in the fundamental reasoning behind the improved analyst posture. Stimulus check spending will certainly give Dollar General some extra firepower, but the degree of same will be difficult at best to figure. A recent study found that the $600 stimulus didn't have much economic impact at all; 52% used it to pay off current debts while 19% parked at least most of it in the bank or similar savings tools. Only 28% of respondents to the study claimed to have “mostly spent it.”
There will likely be gains to come for Dollar General. It's still the go-to discount retailer for a lot of physical shoppers eager to get out of the house but not wanting to go particularly far. Dollar General, however, has a lot of headwind staring it in the face that is likely to limit its expansionary potential. Buying in here may be a good idea, but buying in cautiously may be better.
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