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Dollar General Inc. faces the same uncertainty that other retailers face from the coronavirus epidemic, but analysts say the discount seller is well-positioned to deal with the pandemic.
“Dollar General remains a top pick, positioned for growth and defensiveness, and we reiterate our overweight rating,” wrote KeyBanc Capital Markets analysts in a note.
KeyBanc has a $180 price target on Dollar General shares.
“Looking ahead, while all consumer spend seems at risk due to coronavirus, we believe Dollar General’s historic resiliency, its consumables offering, and its consistent execution position it better than most companies for the potential economic challenges ahead,” analysts said.
See: Kroger limiting the amount of sanitary items customers can buy
Dollar General DG, -0.45% says its import sourcing exposure to the outbreak is limited, though many of its vendors have supply chain relationships with other countries.
“But we currently do not anticipate a material impact on fiscal 2020 results from anything that we have experienced to date,” said Todd Vasos, chief executive of Dollar General, on the Thursday earnings call, according to a FactSet transcript.
Dollar General reported fourth-quarter earnings and sales that beat expectations. Shares are up 1.7% in Friday trading, and have rallied 19.7% over the last year.
The Consumer Staples Select Sector SPDR ETF XLP, +2.28% is down 1.5% over the last 12 months, and the S&P 500 index SPX, +1.64% has tumbled 8.7% over the period.
“We continue to view Dollar General as one of the top ‘all weather’ investment opportunities in hardline retail, given the company’s high consumable products mix (~78% of sales), multi-year store growth opportunity and strong financial position,” wrote Raymond James analysts.
Consumable products include food and paper goods.
Raymond James rates Dollar General stock strong buy with a price target of $165, down from $185. Raymond James says it cut the price target because of the “current market environment.”
See: Walmart may cut store hours to combat coronavirus and says a Kentucky associate has tested positive
BMO Capital Markets has five reasons for confidence in the dollar store channel, which also includes Dollar Tree Inc. DLTR, -0.72% Among them, record low store manager turnover and Dollar General’s focus on fresh food and digital.
“Dollar General sees potential for opportunity for ~12,000 additional stores over time, which suggests potential ~6% unit growth for ~8 years, and where we currently see limited competition for key locations,” analysts led by Kelly Bania said.
BMO rates Dollar General shares outperform with a $175 price target.
