On Friday, Evercore ISI updated its price target for Dollar General (NYSE:DG), nudging it up to $96.00 from the previous $95.00, while keeping an In Line rating on the stock.
According to InvestingPro data, the stock is currently trading at an attractive P/E ratio of 13.1x, suggesting potential value despite a challenging six-month period that saw shares decline by nearly 38%.
The firm's analysis pointed out that Dollar General is facing a tough retail environment, with challenges such as a pressured consumer segment at the lower end of the market and increased competition from various players, including Walmart+ and Amazon (NASDAQ:AMZN).
Dollar General's comparable store sales (comp) increased by 1.3%, which was below the industry growth rate of approximately 2-2.5%. While total revenue showed modest growth of 2.24% over the last twelve months, reaching $39.7 billion, the company's earnings before interest and taxes (EBIT) dropped by 25%, or 18% year-over-year when excluding the impact of hurricanes. This decrease was attributed to the company's investment in higher wages amid widespread cost inflation.
Despite these challenges, Evercore ISI noted some positive developments. Dollar General has slowed its store expansion and is working on inventory cleanup to improve efficiency and minimize markdowns.
The company has also seen shrinkage turn into a tailwind, with expectations for continued improvement over the next one to two years. Additionally, the introduction of same-day delivery services is anticipated to enhance convenience for customers and drive traffic to the stores.
Looking ahead, Evercore ISI anticipates that Dollar General will continue to invest in wage rates and store hours into 2025, which is expected to maintain the EBIT margin below 5% in their model. The firm also removed its negative near-term tactical trading call (TAP), with the stock price currently at $79 compared to $77 when the call was initiated on November 15.
InvestingPro analysis suggests the stock is currently undervalued, with additional exclusive insights available through their comprehensive Pro Research Report, which provides deep-dive analysis of Dollar General's financials, valuation metrics, and growth prospects.
Evercore ISI suggests that value-oriented investors who are looking for low single-digit store growth with company-specific drivers and improving share trends might prefer Kroger (NYSE:KR), which trades at 12.5 times its projected 2026 earnings per share.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.