Dollar General is not performing as expected given the current backdrop, according to Morgan Stanley. The bank downgraded the discount retailer to equal weight from overweight Sunday and lowered its price target to $180 per share from $235. Morgan Stanley’s new forecast implies upside of 8.4% from Friday’s close. “While we anticipated some near-term choppiness on macro/low income consumer weakness in Q1, we underestimated the comp shortfall,” analyst Simeon Gutman said. “DG’s business has not proven as resilient through this current cycle as we expected given its backbone of high consumables mix and its usual status as a trade down beneficiary.” Gutman added that higher-than-expected labor costs and wages could also pressure earnings going forward. He also said there are questions lingering around new management for the company, “mixed market share trends,” a lack of buybacks planned for 2023 and “slowing store growth,” among others. Dollar General shares are down more than 32% year to date. A chunk of those losses came Thursday after the discount retailer reported weaker-than-expected earnings and revenue for the first quarter. The stock dropped nearly 20% that day. The analyst also said that while “capitulation” moments such as Thursday’s selloff can present an opportunity to buy the dip, he noted that “we cannot confidently recommend the stock here given the growing uncertainties and unknowns to the DG story and catalyst path.” DG YTD mountain Dollar General stock has slipped more than 32% from the start of the year. — CNBC’s Michael Bloom contributed to this report.
