The firm said it raised its rating on the discount variety retail chain as it believes labor and wage trends are continuing to improve.
"Labor and wage trends for lower/middle-income consumers continue to improve modestly and the eventual conversion of Family Dollar (FDO) to Dollar Tree (DLTR) stores should provide an incremental sales lift for Dollar General," RBC said in an analyst note.
The firm has an $86 price target on Dollar General, up from its previous $82 price target.
"Further, GMs are starting to improve. If stacked sales trends and margins continue to improve as we expect, we believe Dollar General shares can support a higher multiple," the note continued.
Shares of Dollar General are up by 0.47% to $76.28 at the start of trading on Wednesday morning.
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 1.8%. Since the same quarter one year prior, revenues slightly increased by 8.8%. 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 33.43% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, DG should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- DOLLAR GENERAL CORP has improved earnings per share by 16.7% 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 13.9% when compared to the same quarter one year prior, going from $222.40 million to $253.24 million.
- The current debt-to-equity ratio, 0.50, 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 0.11 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