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Price wars to hit Dollar General: Jefferies

A shopper at a Dollar General store
Daniel Acker | Bloomberg | Getty Images

Jefferies told clients on Monday to steer away from Dollar General stock due to stretched valuations and increased competition, downgrading the company to hold from buy.

"We see increased risk of stepped up price competition," Jefferies analyst Daniel Binder wrote in a research note, explaining that competitive threats from other discount retailers could impact gross margins.

"Risk reward seems less favorable as we have seen evidence of increased pricing activity from WMT [Wal-Mart] and it is still in the early days of its campaign. FDO [Family Dollar] could sharpen pricing further as well, " Binder warned.