Why Morgan Stanley Says Dollar General Is A Good Defensive Play

Although Dollar General Corp’s (NYSE: DG) stock has outperformed the market year-to-date, it has performed in-line with other defensive stocks, according to Morgan Stanley.

The Dollar General Analyst: Simeon Gutman upgraded Dollar General from Equal-Weight to Overweight while raising the price target from $225 to $250.

The Dollar General Takeaways: The stock could continue to outperform in a prolonged downturn given the company’s material earnings and valuation upside, Gutman said in the upgrade note.

“Even if the economy doesn't enter a recession, the business is an earnings compounder, there are several idiosyncratic catalysts/initiatives, DG's margin trajectory is more durable than we appreciated entering the year, and we anticipate a more difficult next 6-12 months for much of Retail given wallet share shifts,” the analyst said. "Thus there are multiple ways for DG to outperform," he added.

“DG fits our theme of favoring quality, defensive retailers with offensive characteristics, It is arguably our most defensive, counter-cyclical company,” Gutman further said.

DG Price Action: Shares of Dollar General had declined by 0.87% to $230.24 at the time of publication Thursday.

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