Melius raises Dollar General stock rating to Buy, target at $110

On Tuesday, Dollar General Corporation (NYSE:DG) received an upgrade in its stock rating from Melius Research. Analyst Karen Short shifted the company's rating from Hold to Buy, setting a new price target of $110.00. The adjustment reflects a positive outlook on the company's current valuation in relation to its historical averages. According to InvestingPro data, the stock has shown strong momentum with a 22.32% year-to-date return, and analysis suggests the company is currently undervalued.

Short noted that Dollar General's valuation appears particularly attractive, trading at less than 8 times its next twelve months (NTM) enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA). This is significantly lower than its long-term average of nearly 12 times. The analyst pointed out that while some of the discount in Dollar General's stock price is self-inflicted, it is also due to Walmart (NYSE:WMT)'s continued market share gains across various customer segments. InvestingPro data shows the company maintains healthy financials with a current ratio of 1.19, indicating sufficient liquidity to meet short-term obligations.

The report also addressed the broader market context, suggesting that the current macroeconomic challenges and the potential closure of competing Family Dollar stores position Dollar General favorably for investors. Short believes that the company is undervalued at its current trading price.

The price target set by Melius Research suggests a 20% upside potential for Dollar General shares. This target is based on a 9 times EV/EBITDA multiple applied to the firm's 2027 earnings estimates. The upgrade and new price target indicate a confidence in Dollar General's future performance despite the competitive pressures from larger retailers like Walmart.

Dollar General's stock is expected to respond to this new rating and price target as market trading continues. Investors will be watching closely to see if the company's performance aligns with Melius Research's projections.

In other recent news, Dollar General Corporation's financial performance and strategic plans have garnered attention from various analysts. Moody's Ratings downgraded the company's senior unsecured notes rating to Baa3 from Baa2, citing challenges in improving operating margins and interest coverage due to inflationary pressures and constrained consumer spending. Despite these challenges, Dollar General has paused share repurchases and used excess cash flow to reduce debt, maintaining its debt/EBITDA ratio at 3.6x. Piper Sandler raised its price target for Dollar General to $81, while maintaining a Neutral rating, noting the company's solid fourth-quarter performance and a strategy aimed at 10% annual EPS growth by 2026. Bernstein elevated its price target to $95, retaining an Outperform rating, reflecting confidence in Dollar General's turnaround strategy and optimistic financial guidance for fiscal year 2025. KeyBanc maintained a Sector Weight rating, recognizing Dollar General's better-than-expected results but noting potential near-term challenges for the dollar store sector in 2025. Lastly, Jefferies increased its price target to $92, acknowledging the company's potential for sales growth and operating margin improvement despite a mixed financial outcome. These developments highlight Dollar General's ongoing efforts to navigate a competitive retail environment and drive future growth.

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