BofA Calls Dollar General 'A Stock For All Seasons,' Upgrades To Buy

Denise Chai of Bank of America Merrill Lynch believes that the recent 10 percent pull back in Dollar General Corp. DG share price presents an attractive buying opportunity.

Chai upgraded the rating on the company from Neutral to Buy, while raising the price target from $98 to $100.

Growth Opportunity

The analyst expressed increasing optimism regarding the company, “given the many achievable comp, margin and capital return/cashflow initiatives in place and the smooth transition of leadership from Rick Dreiling to Todd Vasos.”

Chai noted that Dollar General has a “credible opportunity” for more than 7 percent unit growth in the foreseeable future, which along with the company’s consistent execution and potential upside driven by its various growth initiatives would drive long term top line growth of 7-10 percent, with 7-11 percent EBIT and 10-15 percent EPS growth.

Multiple Expansion

Chai also believes that there is potential for multiple expansion, with the company’s initiatives expected to be able to drive upside to the long term guidance, which does not assume margin expansion.

The analyst pointed out that the initiatives could support continued reinvestment in the business with upside such as “1) improved category management and shrink; 2) greater distribution efficiencies; 3) higher penetration of sourced and private label merchandise; 4) nonconsumables growth; and 5) work and process elimination.”