Dollar General is a "mature company moving into growth mode," analysts at JPMorgan wrote in a note, in which they raised their price target to $133 from $121 a share, representing 10.8% upside from the stock's current level.
After having met with management, JPMorgan analysts said they see impressive growth on both top- and bottom-lines in the coming years. Management, and now JPMorgan, are looking for 2.5% same-store-sales growth with 6%+ square-foot growth, and high single digit EBIT (earnings before interest and tax) growth over the next few years, with management "citing a laundry list of gross margin drivers and bottom-line EBIT margin flow-through," JPMorgan said.
Dollar General is expecting to roll out 5,000 more stores "over time" in the retailer's "non-consumables initiative." In those stores, Dollar General will rely on a higher mix of higher-margin products. The Dollar General Fresh business also will roll out 5,000 stores in the near future, which management described as "the single most impactful initiative in a decade for DG." Those stores, too, will rely heavily on high-margin products like frozen, dairy and deli goods.
Rising freight costs may pressure margins slightly in the near term, but competitive pricing also seems to be in the mix, management told JPMorgan. This doesn't come as a surprise, as many analysts have started to note that consumer spending may soon shift to off-priced players like Dollar General as the economy decelerates and consumers watch their wallets.
JPMorgan raised its earnings per share estimate on Dollar General to $6.45, and its EPS growth forecast for 2020 and 2021 to 11% and 12%, respectively.
The stock has risen 12% this year.
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