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Why Wall Street is Neutral on Dollar General’s Stock

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Apr. 17 2017, Updated 4:45 p.m. ET

Wall Street recommendations

Dollar General (DG) is covered by 30 Wall Street analysts. Together, they rate the company a 2.5 on a scale of 1 (strong buy) to 5 (strong sell). 53% of the analysts are neutral on the stock and have recommended a “hold” rating. Jefferies, Telsey Advisory Group, and Buckingham Research are among the brokers to have recommended holding the stock.

40% of analysts recommend buying Dollar General, compared to 48% “buy” ratings for Dollar Tree (DLTR), 69% for Costco (COST), and only 33% for Walmart (WMT). Bernstein and RBC Capital are among the brokerage houses that suggest buying DG’s stock.

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Credit Suisse recently turned negative on Dollar General, saying there was “sustained competitive pressure on comps and margins” of the company. Analyst Edward Kelly downgraded the stock to an “underperform” from a “neutral” rating, saying, “DG’s long-term growth algorithm looks unachievable, as increasing competition and rising cost pressures should weigh on earnings for some time.”

Comparing target prices and gain potential

Dollar General is currently trading at $68.74, ~40% below its 52-week high price. Analysts expect the company’s stock price to touch $79.16 over the next 12 months. This forecast indicates an upside potential of ~15%.

Dollar Tree has similar upside potential. The company, which is trading at $76.46, is likely to register a jump of 17% in its stock price over the next 12 months.

Walmart and Costco have modest potentials, and their stock prices are expected to increase by just 2% and 8%, respectively.

Investors looking for exposure to Dollar General through ETFs can consider the ProShares DJ Brookfield Global Infrastructure ETF (TOLZ), which invests 3.6% of its total holdings in the company.

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