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Why This Dollar General Analyst Is Turning Bullish

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Jayson Derrick
·2 min read
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The bullish case for Dollar General Corp. (NYSE: DG) is based on a combination of management's ability to execute on several strategic initiatives and the stock's reasonable valuation, according to Loop Capital Markets.

The Dollar General Analyst: Anthony Chukumba upgraded Dollar General from Hold to Buy with a price target lifted from $220 to $260.

The Dollar General Thesis: Dollar General is in the "early innings" of multiple strategic initiatives that will be counted on to drive improved financial performance in 2021 and beyond, Chukumba said in a Tuesday upgrade note.

The initiatives include:

1) Expansion of fresh and frozen goods to the entire chain in 2021.

2) The non-consumable initiative will increase to more than 5,600 stores by the end of the year.

3) Expansion of produce from 1,000 stores today to 1,600 in 2021.

4) Self-checkout options.

Related Link: How Did Retail Perform During The Holidays?

Dollar General's stock trades at the lowest P/E to five-year expected EPS growth (PEG) ratio among its large capitalization and general merchandise value retailer peers, the analyst wrote. Specifically, the stock's current 2021 PEG ratio of 1.35 times is a discount to Dollar Tree, Inc.'s (NASDAQ: DLTR) stock at 1.86 times and Walmart Inc (NYSE: WMT) at 2.19 times.

Despite the valuation gap, Dollar General offers investors the highest projected long-term square footage and earnings growth rates among its peers, he said.

The research firm's $260 price target implies a multiple of 23.5 times on 2021 EPS and this still represents a "healthy discount" to the average valuation of its closest peers.

DG Price Action: Shares of Dollar General were trading near-flat at $206.30 at last check.

Photo: Dollar General.

Latest Ratings for DG

Jan 2021

Loop Capital

Upgrades

Hold

Buy

Dec 2020

Morgan Stanley

Maintains

Overweight

Dec 2020

Raymond James

Maintains

Strong Buy

View More Analyst Ratings for DG
View the Latest Analyst Ratings

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