Goldman Goes Neutral On Dollar Stores, But Likes Dollar Tree

The brokerage sees the business model of dollar stores as built upon value and convenience and expects the dominance of dollar stores to continue.

Among the 27,500 dollar store locations, about 26,700 stores belong to the top three retailers: Dollar Tree, Dollar General Corp. DG and Family Dollar. These three retailers have added about 9,000 stores since 2005. The brokerage expects the sector could add about 9,800 stores moving forward, which means growth can be expected from both Dollar Tree and Dollar General.

Related Link: Five Below Has A Good Concept And Great Growth, But Little Upside At Current Price

The analyst told clients in a research note, "Outsized growth in the number of low-income households, sluggish wages lagging inflation in the cost of living, and the 'crowd-out' effect this has had on consumer budgets have raised the bar on value since the financial crisis, and hours worked has also grown over this time, driving the appeal of convenience; in all, a good cycle for the dollar stores."

Ratings

Goldman Sachs affirmed the ratings of three top-dollar stores:

• Dollar Tree: The brokerage expects EPS to nearly double in 2018 from the levels 2015. Analysts have CL-Buy rating and a price tag of $101 on the issue.
• Dollar General: Downgraded the shares from Buy to Neutral citing risks toward the downside in the near term.
• Five Below Inc FIVE: The brokerage upgraded the shares from Sell to a Neutral rating, saying the stock is priced for perfection.

Full ratings data available on Benzinga Pro.