Citigroup Says Dollar General Is A Buy; Are There Other Attractive Discount Store Stocks?

On Wednesday, Citigroup initiated coverage on Dollar General Corp. DG with a Buy rating and an $84.00 price target. In his report, Citigroup analyst Alvin C. Concepcion, said that “Although much of the investor focus has been on the potential to win the Family Dollar shareholder approval to acquire FDO on 12/23 (which is an accretive deal in its current form), we believe that even without the deal that shares are attractive from a valuation standpoint.” The price target fixed by Citigroup implies an upside potential of 23% from the moment it was published.

Credit Suisse is also quite bullish on Dollar General; on December 1, it reiterated its Outperform rating for the company and a $76.00 price target. While the upside potential is not as large, the option still looks quite attractive.

Now, what about its industry peers Dollar Tree, Inc. DLTR and Family Dollar Stores, Inc. FDO?

The Competition

Family Dollar is currently looking pretty alluring as larger peers Dollar Tree and Dollar General fight over a takeover, to be decided on Family Dollar’s December 23 shareholder meeting. After Dollar General made an $80-per-share bid, Dollar Tree was obliged to ameliorate its offer, from $74.50 per share, to $76.50 per share. This has sent Family Dollar’s stock on an uptrend, hitting historic highs.

While Dollar General’s offer is not as certain as Dollar Tree’s, and could face the new company with antitrust issues, one thing is for sure: the dispute is certainly helping Family Dollar. But, will the stock continue to climb above its current price of $79.46? Probably not, since the best case scenario for the sale implies a stock price of $80.00 per share.

So, if the entry point at Family Dollar is not attractive right now, is it at Dollar Tree? I’d say it is. Even if the Family Dollar doesn’t go through, the company’s prospects look quite encouraging. On Wednesday, December 10, Citigroup also initiated coverage on this company, and set a price target of $75.00, which implies an 11% upside potential.