Deutsche Goes Shopping For Discount Retailer Stocks

Paul Trussell of Deutsche Bank took a deep dive into the "low-end" retail sector, which he argues to be "one of the healthiest groups in retail." However, the analyst pointed out that in some cases, retail names are trading near all-time highs, which creates concerns among investors moving forward.

Trussell added that he sees upside in the group as being "tempered" in the near term, but the group's "heightened" valuation could remain due to the following:

1. Limited share loss to e-commerce players
2. "Unique" margin profiles and levers
3. An encouraging macro backdrop that could support momentum among the "low-end" customer base

Trussell also stated that the six stocks discussed in the group (seen below) are all trading at over a full-turn premium to their respective historical multiples on an EV/EBITDA basis and 1.9x premiums on their forward P/E.

Summary Of Analyst Recommendations

1. Wal-Mart Stores, Inc. (NYSE: WMT) was maintained with a Hold rating with a price target lowered to $77 from a previous $68.
2. Five Below Inc (NASDAQ: FIVE) was maintained with a Hold rating with a price target raised to $46 from a previous $39.
3. Dollar General Corp. (NYSE: DG) was downgraded to Hold from Buy with a price target raised to $99 from a previous $95.
4. Dollar Tree, Inc. (NASDAQ: DLTR) was upgraded to Buy from Hold with a price target raised to $110 from a previous $82.
5. Big Lots, Inc. (NYSE: BIG) was maintained with a Hold rating and $49 price target.
6. Fred's, Inc. (NASDAQ: FRED) was maintained with a Hold rating and $15 price target.

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