By Sam Boughedda
Argus lifted Dollar General (NYSE:DG) to buy from Hold, with a one-year price target of $250 per share in a note Friday.
Analysts told investors that Dollar General is a rare company that is growing square footage and posting positive comparable sales.
"The company had delivered more than 30 consecutive years of growth in same-store sales, although the streak ended in FY22 as DG lapped the strong pandemic-driven growth of FY21. But the two years together represented a healthy two-year stack of 13.5%," said analysts.
Analysts went on to explain that the firm has been looking for an entry point to put DG on its BUY list, and now, with shares down 17% from their 52-week high and tight monetary policy hurting retailers that sell big ticket items, they believe DG "looks relatively attractive over the next 12 months."
"We expect Dollar General to drive 11% compound annual EPS growth over the next five years by opening new stores with a low-cost structure and by offering 'everyday low' prices. In addition, we look for the company to offset margin pressure by managing the mix of consumable and discretionary merchandise, making promotions more effective, increasing the mix of higher-margin private brands, improving logistics, and reducing theft," the analysts added.
"We also believe that management has an opportunity to grow expenses more slowly than sales and to improve the efficiency of store operations and the supply chain. We see an additional opportunity for DG to enhance EPS by repurchasing shares."