Update (10:00 a.m.): Updated with Wednesday market open information.
NEW YORK (TheStreet) -- BMO Capital reduced its target price on Dollar General (DG) to $65, reduced its estimates through 2015 and set an "outperform" rating. The firm noted the company could face increased competition from Wal-Mart (WMT).
"We having growing concerns that the heightened promotional and traffic driving tactics employed by Walmart and the grocery and drug store channels we continue to observe on key grocery, drug, and consumable
branded items will remain unabated into 2014," BMO wrote in a research note. "If correct, DG could be affected, placing further pressure on gross margin rate."
The stock was falling 1.43% to $57.19 shortly after the market opened on Wednesday.
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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, growth in earnings per share, increase in net income, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel these strengths outweigh the fact that the company shows low profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 2.5%. Since the same quarter one year prior, revenues rose by 10.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- DOLLAR GENERAL CORP has improved earnings per share by 19.4% 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 $2.86 versus $2.22 in the prior year. This year, the market expects an improvement in earnings ($3.21 versus $2.86).
- The net income growth from the same quarter one year ago has significantly exceeded that of the Multiline Retail industry average, but is less than that of the S&P 500. The net income increased by 14.3% when compared to the same quarter one year prior, going from $207.69 million to $237.39 million.
- 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 25.95% over the past year, a rise that has exceeded that of the S&P 500 Index. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
- The current debt-to-equity ratio, 0.55, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.10 is very weak and demonstrates a lack of ability to pay short-term obligations.
- You can view the full analysis from the report here: DG Ratings Report