On Friday, BMO (TSX:BMO) Capital Markets updated their stance on Dollar General Corp (NYSE:DG), increasing the price target to $160.00 from the previous $130.00, while maintaining a Market Perform rating on the stock. The adjustment follows Dollar General's fourth-quarter earnings for fiscal year 2024, which exceeded expectations due to better comparable store sales (comps).
However, the initial earnings per share (EPS) guidance for fiscal year 2025 was approximately 3% below the consensus at the midpoint, despite a stronger-than-expected comparable sales guide.
According to the analyst from BMO Capital, Dollar General's performance in the fourth quarter demonstrated the company's potential to reclaim its position as a top performer in its sector.
Nevertheless, there are concerns that the rollback of certain initiatives, such as self-checkout systems, may curb the potential for a significant rebound in margins. Based on the current assessment, the stock appears to be fairly valued, taking into account the anticipation of a return to 10% EPS growth.
The new price target of $160 is based on roughly 20 times BMO Capital's estimated EPS of $8.10 for fiscal year 2026. This valuation reflects a balance between Dollar General's recent performance and the market's forward-looking expectations. The analyst's commentary suggests that while Dollar General has shown strong execution, there are elements that could limit its margin improvement going forward.
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