Dollar General Faces Recessionary Headwinds as Core Consumer Reaches Stress Point

JP Morgan's Matthew Boss downgraded their rating on Dollar General (NYSE: DG) from Hold to Strong Sell on September 20, 2023. The analyst also lowered their price target by 12.1% from $132 to $116.

According to Boss, Dollar General's core low-end consumer is "now at a stress point and acting recessionary today." This assessment suggests that the company's target market is currently facing financial difficulties, which could impact their purchasing behavior. Boss also highlighted another concerning factor: "excess savings for the middle-income cohort on pace to be depleted by the end of September or October 2023 and the potential for sequential worsening when student loan repayments begin."

These observations have led Boss to change their rating on Dollar General to Strong Sell. The new rating indicates a strong recommendation for investors to sell their holdings in the stock. This downgrade is a significant shift from the previous Hold rating, suggesting that Boss has grown more pessimistic about the company's prospects.

Despite the downgrade, it is worth noting that not all analysts share Boss's bearish view. Currently, 41.7% of top-rated analysts consider Dollar General a Strong Buy or Buy, while another 41.7% rate it as a Hold. Only 16.7% of analysts recommend selling the stock, either moderately or strongly.

Looking at the consensus forecast among analysts, Dollar General is expected to deliver earnings per share (EPS) of $11.43 in the upcoming year. If this prediction holds true, it would represent a 16.7% increase in EPS compared to the previous year. This positive outlook suggests that some analysts still believe in the company's ability to generate growth despite the concerns raised by Boss.

However, Dollar General's stock performance has been disappointing in recent months. Since the company's last quarterly report on August 4, 2023, the stock price has declined by 31.1%. On a year-over-year basis, the stock is down 52.9%. During this period, Dollar General has underperformed the S&P 500, which is down 14.2%. These figures indicate a challenging market environment for the company and may have influenced Boss's decision to downgrade the stock.

Matthew Boss, the JP Morgan analyst behind the rating change, is highly regarded in the industry. WallStreetZen ranks Boss in the top 14% out of 4,333 Wall Street analysts. They have an average return of 2.9% and an impressive win rate of 54.4%. Boss specializes in analyzing companies in the Consumer Cyclical, Consumer Defensive, and Industrials sectors.

Dollar General Corporation, founded in 1939, operates variety stores across the United States. The company is known for its profitability, particularly in rural areas. Dollar General offers a wide range of merchandise, including consumable items, seasonal products, home goods, and apparel. The company is headquartered in Goodlettsville, TN.

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