Dollar General's Selloff May Have Created An Entry Point

Macquarie retained its Outperform rating on Dollar General Corp. (NYSE: DG) saying the recent selloff has created an "excellent" entry point as the competitive concerns are "generally misplaced" and overblown, while the macro pressures are transitory in nature.

According to the brokerage, the key issues hurting Dollar General is deflation and the impact of SNAP benefit cuts. In fact, Macquarie acknowledged that these issues, along with investments, will weigh on the results over the next several quarters.

"[B]ut we believe as these pressures subside the long-term growth algorithm will prove intact," analyst Bob Summers wrote in a note.

Summers noted that targeted investments in challenged SNAP market should reverse unfavorable comparable store sales momentum. The analyst sees positive benefit from 10 percent reduction offered by the company in 450 of best-selling items across 2,200 stores.

The analyst, who reiterated his $92 price target on shares, still believes the company will return to growth once the near-term headwinds from "temporary, generally non-competitive items" subside.

"We expect the stock to outperform as its counter-cyclical value becomes better appreciated," Summers added.

At time of writing, shares of Dollar General were up 1.2 percent to $71.21.