Dollar General downgraded at Raymond James but analyst still sees stock outperforming S&P 500 in the next year

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Dollar General Corp.’s stock continued its slide early Friday as Raymond James downgraded the discount retailer on the heels of its worse-than-expected second-quarter results.

While Raymond James cut its Dollar General
DG,
-5.94%
rating by one notch, it still assigned an outperform rating to the stock because “we don’t think Dollar General is a permanently broken business,” said analyst Bobby Griffin.

An outperform rating at Raymond James means a stock is expected to appreciate and outperform the S&P 500 over the next 12 months.

Below its outperform rating, Raymond James also has two lower ratings: market perform and underperform. Its previous rating for Dollar General was strong buy.

Raymond James cut its price target for Dollar General to $160 from $200 to reflect pressure on margins due to markdowns, theft or shrinkage, and consumer weakness, Griffin said.

While Dollar General’s numbers remain disappointing for now, Griffin said the company’s cost pressures “will eventually abate and the company will return to more consistent earnings growth.”

On Friday, investors continued to bid down Dollar General stock, as the price fell 1.4% in premarket trades.

Separately, analysts at Jefferies cut their price target for Dollar General to $175 from $230 a share.

On Thursday, Dollar General’s stock lost 12% of its value after missing its earnings projections and lowered its profit outlook on lower same-store sales and reduced traffic.

A company store in Jacksonville, Fla., was the site of a tragedy on Aug. 26 when a 21-year-old white man shot and killed three Black people and himself in a racist attack.

Also read: Walmart’s ‘shrink’ challenges differ from those of other retail giants, CEO says

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