Skip to main content

NEW YORK (TheStreet) -- Shares of Dollar General Corp. (DG) were rising, up 0.22% to $73.72 in early market trading Tuesday, after analysts at Goldman Sachs added the discount retailer to the firm's "conviction buy" list this morning.

The company was upgraded to "conviction buy" from "buy" with a higher price target of $87 from $85.

Goldman cited Dollar General's long-term growth driven by the company's robust fundamentals, as well as its attractive valuation.

The firm also pointed to tailwinds from low-income consumers as well as the discount retailer's competitive advantages.

"We note DG has significantly lower import exposure versus Dollar Tree (DLTR) , DG sells essentially no produce and limited dairy, and we have already factored wage pressure into our estimates, as we embed less leverage in the out years to incorporate potential wage hikes," Goldman Sachs analysts wrote in a report.

The firm added that its numbers do not factor in the potential upside from consolidation in the dollar store industry.

Goodlettsville, Tenn.-based Dollar General is a discount retailer that sells a selection of merchandise, including consumable products such as food, paper and cleaning products, health and beauty products, pet supplies and tobacco products, as well as non-consumable products.

The company offers merchandise at low prices through 11,215 retail store locations across the country.

Separately, TheStreet Ratings team rates DOLLAR GENERAL CORP as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate DOLLAR GENERAL CORP (DG) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, growth in earnings per share, increase in net income and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • DG's revenue growth has slightly outpaced the industry average of 2.1%. Since the same quarter one year prior, revenues slightly increased by 9.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 33.98% over the past year, a rise that has exceeded that of the S&P 500 Index. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
  • DOLLAR GENERAL CORP has improved earnings per share by 15.8% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, DOLLAR GENERAL CORP increased its bottom line by earning $3.50 versus $3.17 in the prior year. This year, the market expects an improvement in earnings ($3.95 versus $3.50).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Multiline Retail industry average. The net income increased by 10.3% when compared to the same quarter one year prior, going from $322.17 million to $355.37 million.
  • Net operating cash flow has slightly increased to $474.20 million or 4.79% when compared to the same quarter last year. Despite an increase in cash flow of 4.79%, DOLLAR GENERAL CORP is still growing at a significantly lower rate than the industry average of 104.17%.
  • You can view the full analysis from the report here: DG Ratings Report