According to Morgan Stanley, Dollar General is a defensive stock that could outperform in “many ways” as the potential for a recession increases. Analyst Shimon Gutman upgraded Dollar General’s shares to overweight, saying in a note Thursday that defensive stocks with aggressive characteristics should get a boost amid more inflationary pressure. “In a prolonged downturn, DG should continue to outperform with growth in physical earnings and valuations. Even if the economy does not enter a recession, business is an income compounder,” the note said. “DG’s margin trajectory is more sustainable as we enter the year, and we expect wallet share shifts for retail to be more difficult over the next 6-12 months.” Morgan Stanley raised its price target from $225 to $250. The new price target represents a 7% increase from Wednesday’s closing price. The analyst believes that Dollar General could also benefit from the impact of a decline in trade, which is at the “peak of acceleration” as more consumers try to stretch their wallets with a cheaper basket of goods. . “Thus there are many ways for DG to outperform, and few ways to lose – in fact, the only scenario where DG can be a relative underperformer is if the market rapidly moves into an early cycle ‘recovery’ environment. in which cyclicals outperform,” the note read. “We think this is unlikely in the near to medium term, and it is not what our US equity strategists are expecting.” Shares of Dollar General fell more than 1% in Thursday’s premarket trading as a sell-off in the broader market. —CNBC’s Michael Bloom contributed to this report.
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