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Why Dollar General Stock Was Gaining Today

By Jeremy Bowman - Updated Mar 31, 2020 at 3:48PM

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Shares of the discount retailer rose on an analyst upgrade.

What happened

Shares of Dollar General (DG 0.88%) were on the rise today as the discount retailer got an upgrade from Wells Fargo. The retailer has emerged as one of several brick-and-mortar chains that is well-equipped for the coronavirus crisis, as it sells consumables like canned food, paper products, and cleaning supplies, and is known for its discount prices.

Today's upgrade only burnishes those credentials. As of 2:52 p.m. EDT, the stock was up 5.1%.

The front of a Dollar General store

Image source: Dollar General.

So what

Analyst Edward Kelly upgraded the stock from neutral to buy and raised his price target to $175 from $155; he said it was well-positioned to benefit from the coming government stimulus, and has a number of other tailwinds during the COVID-19 crisis and subsequent recession. The company is considered an essential retailer, and has more locations than any other retail chain, giving it broad exposure to U.S. consumers during the crisis. In a recession, Dollar General is also likely to outperform the market, as consumers trade down to cheaper products and are more likely to buy smaller pack sizes as paychecks get stretched.

Kelly also endorsed the company's long-term growth potential as it continues to rapidly extend its store base and benefit from economies of scale.

Now what

Like other essential retailers, Dollar General has announced special bonuses for its employees who have had to work long hours and take on additional risks in recent weeks, and said it would hire 50,000 additional employees, a sign of the surge in demand it's experiencing. It's also giving back to local communities by offering a 10% discount to first responders, including medical workers and National Guard members.

The retailer has outperformed the S&P 500 since the crisis began, but is still down since Feb. 21. That could be a mistake, considering the company should see solid sales growth over the coming months and it's likely to be able to capitalize on a recession as well.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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