HSBC sees ‘plenty of road for recovery’ for Dollar General

Investing.com -- HSBC upgraded Dollar General (NYSE: DG) to Buy from Hold on Thursday, saying the discount retailer's turnaround is firmly underway and its shares look too cheap.

Analyst Joe Thomas raised his price target to $160 from $125, about 30% above the stock's current price of $122.63.

"Dollar General's recovery is moving from promise to delivery," Thomas wrote.

In the second quarter, sales rose 5.2% and comparable sales grew 3.5%, helped by both more customer visits and larger purchases.

Operating margins widened by 126 basis points, or 60 basis points without a tariff benefit. Management also raised its full-year guidance and restarted its share buyback earlier than planned.

Thomas said Dollar General looks on track to reach the top end of its comparable sales guidance this year, which could push earnings above forecasts.

He added that store investments and e-commerce are starting to speed up growth, while the company is also winning shoppers who are trading down, with HSBC expecting a loyalty program launching later this year to help keep them.

"DG's 6-7% operating margin target looks like a milestone rather than a ceiling for the business," the analyst wrote. He noted that adjusted for tariffs, second-quarter operating margin was already 6.2%, the highest since the second quarter of 2023.

Thomas also noted that shares trade at about 15 times earnings, near the low end of their historical range. HSBC believes that the valuation assumes barely any improvement on last year's results.

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