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Analysts Look For Value In Dollar General After Q3 Report

Jayson Derrick

Dollar General Corp. (NYSE: DG) reported mixed earnings before the open Dec. 7, with same-store sales exceeding expectations but a decrease in net income. Here's how Wall Street reacted: 

Morgan Stanley: Growth Continues

Morgan Stanley's Vincent Sinisi reiterated an Overweight rating on Dollar General's stock with a price target raised from $90 to $97.

One of the more notable aspects of Dollar General's earnings report is a 4.3-percent comps increase, a figure that came in "well above" expectations, the analyst said. 

Dollar General's earnings per share matched what Wall Street expected despite higher expenses from hurricanes and planned investments in labor, the analyst said. 

Looking beyond 2017, the dollar store retailer is expected to record a low double-digit annual earnings per share growth rate on a 2.5-percent comp gain. The company's preliminary 2018 guidance demonstrates a focus on expansion of healthier food options, more cooler doors, health and beauty aid products and digital initiatives, according to Morgan Stanley. 

UBS: 'Admirable'

UBS' Michael Lasser maintains a Buy rating on Dollar General's stock with a price target boosted from $99 to $105.

Dollar General's comp performance in the quarter gives the company much needed "credibility" that it can achieve a 10-percent-plus earnings per share growth profile, Lasser said in a note.

With thousands of stores coming online in the near-term, the "comp waterfall should be fully activated" along with gross margin expansion, and also represent a "cushion" for gross margins, the analyst said. 

Related Link: Deutsche Bank Anticipates A Beat And Raise From Dollar General

Loop Capital: Not A Noteworthy Q3

Loop Capital Markets' Anthony Chukumba maintains a Hold rating on Dollar General's stock with an unchanged $87 price target.

Dollar General's earnings report was "solid but by no means noteworthy," and it's the only deep discount retailer in the analyst's coverage that failed to report an "impressive beat and raise" quarter, Chukumba said. While the same-store sales growth was impressive, it comes at a time when the company failed to generate any expense leverage, he said. 

Bottom line, the earnings report offered "no reason to get off the sidelines" for Loop Capital, especially after a 26-percent gain in the stock since the start of 2017.

Buckingham: Rich Valuation

Buckingham Research Group's Kelly Crago maintains a Neutral rating on Dollar General's stock with a price target boosted from $75 to $93.

Dollar General's business continues to improve post-SNAP reductions, but now is not the time to be a buyer of the stock, Crago said in a research report. The retailer lacks margin drivers beyond SG&A leverage in fiscal 2018, and this is already priced into the stock at current valuation, she said. 

In fact, shares of Dollar General are inching within an all-time high multiple of 18.5x on the analyst's fiscal 2018 EPS estimate, which implies investors should wait for a "more attractive entry point to be more constructive on the stock."

KeyBanc: More Evidence Needed

KeyBanc Capital Markets' Bradley Thomas maintains a Sector Weight rating on Dollar General's stock with no assigned price target.

Dollar General's earnings report "encouragingly" showed an acceleration in comps due to ticket and traffic improvements, while gross margins improved for the first time in four quarters, Thomas said in a research report. But the analyst isn't ready to recommend buying the stock until management can provide evidence it can continue driving profitable sales growth in a highly competitive landscape

Related Link:

The Best Food Retail Stock Is...Dollar Tree?

Photo courtesy of Dollar General. 

Latest Ratings for DG

Date Firm Action From To
Dec 2017 Moffett Nathanson Initiates Coverage On Neutral
Nov 2017 Deutsche Bank Upgrades Hold Buy
Nov 2017 Goldman Sachs Assumes Neutral Neutral

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