Performance Food and Dollarama picked by Wells Fargo as post-COVID outperformers while Dollar General and Target seen struggling
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Wells Fargo sees a rough road ahead for the group of retail stocks considered COVID beneficiaries. The firm notes that the consumer looks healthy overall, but some store chains are seen struggling as they lap historic stimulus and retail wallet share gains. Analyst Edward Kelly says cost pressures should remain in place for at least the first part of the year and says consensus expectations do not seem to be on the low side,

Accounting for all that, Wells Fargo cuts its rating on Dollar General (NYSE:DG) and Target (NYSE:TGT) to Equal-weight from Overweight.
On Dollar General (DG): "While DG remains an attractive multi-year story, we have significant concerns around the company's exposure to the low-income consumer in 2022 given the seeming end of monthly child tax credit payments and an estimated 40% decline in SNAP (which now accounts for double-digits percent of sales). We have cut our price target to $220 from $250, which would represent 20x our below consensus 2022 EPS estimate of $11.00 (includes an extra week)."
On Target (TGT): "TGT's epic performance during COVID creates a difficult 2022 set-up, in our view. The company's differentiated model was in the right place at the right time during the pandemic, but lapping the equivalent of 10 years of growth generated in 2020/21 is accompanied by a degree of risk that makes recommending the stock difficult to justify. Margins also carry some risk given the step back we saw in Q3 and the dramatic improvement overall vs. 2019. We have cut our new price target to $230 from $275, which would represent 18x our below consensus 2022 EPS estimate of $12.75.
What is there to like in the post-COVID retail landscape? Performance Food Group Company (NYSE:PFGC) is the top Wells Fargo pick and the firm is still bullish on Dollar Tree (NASDAQ:DLTR). US Foods' (NYSE:USFD) COVID recovery upside could be boosted by recent activist ownership, which WF believes is focused on addressing the margin gap to peer Sysco. Dollarama (OTCPK:DLMAF) is singled out as a lagging recovery play in Canada without the macro headwinds of U.S. dollar stores.
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