Why Dollar General Corp. Is Poised to Pull Back

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Dollar General Corp. (NYSE: DG  ) slipped about 1% this morning after Wells Fargo downgraded the discount retailer from outperform to market perform.

So what: Along with the downgrade, analyst Matt Nemer lowered his valuation range to $55-$58 (from $59-$63), representing as much as 5% worth of downside to yesterday's close. While contrarians might be attracted to Dollar General's share-price weakness in recent months, Nemer thinks that the upside remains limited, given his view of a weakening environment for the low-end consumer.

Now what: According to Wells, Dollar General's risk/reward trade-off is relatively unattractive at this point. "[T]he environment for the low-end consumer continues to deteriorate causing discretionary weakness that is impacting both sales and gross margin, and we see increasing likelihood FDO could pursue strategic alternatives that we view as a shorter-term negative for DG," noted Nemer. When you couple those headwinds with Dollar General's near-20 P/E, it's tough to disagree with Wells' cautious stance. 

More compelling ways to grow
They said it couldn't be done. But David Gardner has proved them wrong, time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently, one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2844450, ~/Articles/ArticleHandler.aspx, 9/4/2015 12:39:55 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Brian Pacampara

I take a look at big 10% moves, as well as stock-shaking analyst calls, on a daily basis for The Fool. While I don't believe in active trading, closely monitoring Mr. Market's mood swings can help identify long-term opportunities.

Today's Market

updated Moments ago Sponsored by:
DOW 16,103.78 -270.98 -1.65%
S&P 500 1,918.93 -32.20 -1.65%
NASD 4,685.27 -48.23 -1.02%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/4/2015 12:24 PM
DG $72.81 Up +0.65 +0.90%
Dollar General CAPS Rating: ***