There’s no doubt that dollar and discount stores saw a boost from government stimulus during the pandemic, as their core customers were among the most likely to have incomes low enough to qualify for the checks. The problem, according to KeyBanc Capital Markets, is that the market might be too enthusiastic about how much they’ll benefit.
Analyst Bradley Thomas took a look at the sector ahead of first-quarter earnings reports, and downgraded
stock (ticker: DG) to Sector Weight from Overweight, while removing his $220 price target. While the company is still best in class, he writes that he is concerned about “valuation and difficult comparisons as the economy returns to normal and as the stimulus impact wanes.”
He did raise his estimates for Dollar General’s fiscal first quarter—and the full year in 2021 and 2022—to reflect improving trends, but argues that much of this good news is already priced into the stock.
Likewise, Thomas lowered his price target on Ollie’s Bargain Outlet (OLLI) to $105 from $120, while maintaining an Overweight rating. He thinks this stock also got an outsize bump from the stimulus, which will fade in the coming quarter.
By contrast, he reiterated an Overweight rating and $125 price target on
(DLTR), as the stimulus may help it more than some investors think. “We continue to like Dollar Tree, supported by Dollar Tree’s multi-price point initiative, the successful Family Dollar …renovations, and the recovery opportunity at Dollar Tree.”
Thomas is also still bullish on
(WMT) ahead of their coming earnings reports. The two have invested heavily in digital capabilities and facilitating easy order pickup and delivery, two trends that the analyst says will outlast the pandemic. He has Overweight ratings on both stocks, with a $235 price target on Target and $180 target on Walmart.
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