Dollar General a ‘textbook recession play,’ hard landing would be helpful, says Wells Fargo

This post was originally published on this site

They explained that DG, which is also labeled a “Signature Pick” at the firm, has “legitimate concerns” that were reinforced in the firm’s expert call, but “sentiment is poor and easy comparisons lie ahead.”

“The push looks to be growing signs of consumer softness, as a hard landing would actually be quite helpful,” the analysts wrote. As a result, the analysts believe the case to stay defensive is rising.

“A recession might just be what DG needs. Trade down has been underwhelming to date given the positive employment backdrop, but would likely accelerate,” they added. “Concerns around wage rates at DG would likely dissipate. Some form of stimulus/uptick in SNAP could even emerge. DG is the textbook recession play and still makes sense for those looking to be defensive.”

The analysts acknowledged that “sentiment remains decidedly negative” with concerns around management turnover, execution issues, labor, and a less-than-ideal consumer backdrop. However, while they are real, they also feel they are “very well documented at this point.”