Looking For Bargains In Dollar Store Names Following A Rough Q2

Deutsche Bank sees investors recognizing the challenges faced by retailers Dollar General Corp. DG and Dollar Tree, Inc. DLTR and the continued macro headwinds following the second quarter. Therefore, the firm reduced EPS estimates for these two firms for the fiscal year 2017/18.

While the brokerage maintains a Buy rating on Dollar Tree, the target price for the stock has been slashed from $104 to $96. Similarly, the firm kept Hold rating on Dollar General but reduced the price objective from $84 to $77 on the company's shares.

As far as Dollar General, analyst Paul Trussell cited that the stock dropped 18 percent after the second quarter results while S&P 500 fell one percent. As a result of headwinds like margin pressure and weak traffic, he reduced his EPS estimate from $4.96 to $4.65 to reflect margin compressions and a cut in same store sales, citing continued macro environmental concerns.

Related Link: Dollar Stores See Tailwinds Dissipating

In a research note, the brokerage said, "We do view DG as a high-quality retailer with a solid management team able to execute and take market share long-term, but are content on the sidelines as we wait to see how near- and medium-term factors play out."

Similarly for Dollar Tree, Trussell slashed his EPS estimate for fiscal year 2018 from $5.59 to $5.44 to reflect lower comparable store sales and weak outer year comps hurt by growing competition.

"We think investor focus is more on the long-term algorithm vs. near-term quarterly results, and we expect Family Dollar to continue to close the comp and margin gap vs. peers while the legacy Dollar Tree business provides steady growth," the brokerage told its clients.

At Last Check ...

• Dollar General was down 0.3 percent at $69.45.
• Dollar Tree was down 0.12 percent at $77.88.

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