Dollar General Corp (NYSE: DG) stands to benefit if the U.S. economy slides into a recession next year, says Peter Keith. He’s the Senior Research Analyst at Piper Sandler.
Dollar General stock will benefit from the trade down
Despite remarkable inflationary pressures, consumers didn’t trade down this year because retailers announced discounts and promotions to deal with the inventory glut.
According to Keith, though, that could change in 2023. On CNBC’s “Closing Bell: Overtime”, he noted:
Companies like a Dollar General might benefit from the trade down. If consumers are feeling more strained, they want more value shopping, where might they go to save money? We think the dollar stores are a great place for that.
Earlier this month, the retail chain reported better-than-expected revenue for its third financial quarter. Dollar General stock is currently up about 5.0% year-to-date.
Dollar General stock is not very expensive to own
Keith likes Dollar General also because it’s trading in line with the average of its price-to-earnings multiple over the past five years – so, it’s not expensive per se. The analyst added:
Inventories are starting to clean up. We think they’re largely normalised in 2023. Trade down accelerates in our view, as jobless claims take off. So, DG we like a lot, it’s a high-quality name, a safe haven for the trade down environment.
He’s convinced that the Goodlettsville-headquartered firm will see a boost to its gross margins next year.
Keith has an “outperform” rating on the Dollar General stock. His price target of $288 a share translates to just over 17% upside from here.
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