Telsey Upgrades Dollar General, Sees Accelerated EPS Growth

Dollar General Corp. DG's operating initiatives, store openings, and financial setup makes the stock look attractive at current levels, according to Wall Street's newest bull analyst.

The Analyst

Telsey Advisory Group's Joseph Feldman upgraded Dollar General's stock from Market Perform to Outperform with a price target boosted from $98 to $120.

The Thesis

The case for being aggressive on the dollar store chain is based on expectations for accelerated earnings per share growth in 2018, Feldman said in a note. Specifically, the company's EPS growth could be as high as 31.5 percent (approximately 10 percent excluding benefits from tax reform) after hovering at a flattish-to-low-single-digit rate in 2017.

There are multiple catalysts ahead to support a strong growth in EPS, including a sustainable low-single-digit same-store sales, share gains from remodeled stores, resetting of snacks and beverages, and other product offerings, loyalty created through price investments, a focus on private label brands, and 900 new store openings that are generally "highly productive" with an average return of 18 to 20 percent and a payback period of less than two years.

Dollar General is a "solid operator" that can benefit from the favorable economic backdrop, especially from improvement in jobs and wages.