Morgan Stanley Upgrades Dollar General (DG) to Overweight

Morgan Stanley analyst Simeon Gutman upgraded Dollar General (NYSE: DG) from Equalweight to Overweight with a price target of $160.00 (from $130.00).

The analyst comments "We are raising our PT to $160 (from $130) based on ~19x our '25e EPS of $8.10, including raised estimates (~5.5%) and valuation (~19x target P/E multiple vs. ~16.5x prior). Our upgrade is based on three key points. First, we think near-term fundamentals are bottoming and '24 should see sequential improvement on SSS with recent market share losses leveling off. Second, margins should begin to recover in '24 with expansion accelerating in '25 as transitory execution challenges and supply chain missteps are resolved. This should result in a healthier margin and earnings profile in '25 than in '23 (including a ~7% '23-'25e EPS CAGR) for a stock that lagged significantly in '23. We also don't expect a deeper investment round that would constrain the margin/earnings recovery. Third, valuation could rerate on an earnings recovery with the stock trading below its longer-term average and with restored investor confidence under CEO Todd Vasos's return. This makes DG a compelling investment case, both on idiosyncratic, improving rate of change and an recovering macro. Risk/reward looks positive given low probability of an "extreme" bear case (deeper investment round) playing out over the next 1-2 years."

For an analyst ratings summary and ratings history on Dollar General click here. For more ratings news on Dollar General click here.

Shares of Dollar General closed at $134.64 yesterday.

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