3 Analysts Are More Bullish On Dollar General Post Q1 Beat

Dollar store chain Dollar General Corp. DG reported Thursday first quarter results which came in better than expected and prompted at least three Street analysts to become incrementally bullish on the stock.

The Analysts

KeyBanc Capital Markets' Bradley Thomas maintains at Overweight, price target lifted from $125 to $140.

BMO Capital Markets' Kelly Bania maintains at Outperform, price target lifted from $133 to $140.

UBS' Michael Lasser maintains at Buy, price target lifted from $126 to $143.

KeyBanc: Key Highlights

Dollar General reported an earnings beat in the first quarter driven mostly by better-than-expected sales performance and a lower-than-expected gross margin contraction, Thomas wrote in a note. Comps of 3.8 percent beat estimates of 2.8 percent due to an uptick in average transactions and traffic. In fact, comps stood up well against last quarter's difficult comparison of 4.0 percent.

Management said it saw broad-based strength with growth in consumables, seasonal, and home categories, the analyst wrote. The momentum could be sustained and the company has a "favorable opportunity" to show top-line growth and market share gains over the long-term.

Related Link: Dollar General Analyst Sees Multiple Drivers For Market Share Growth

BMO: 'Strong Start' To The Year

Dollar General reported a "strong start" to the new fiscal year highlighted by a 3.8 percent comp growth, Bania wrote in a note. As such, management's full-year guidance for 2.5 percent comp growth could be seen as conservative due to: 1) "customer stickiness" as a result of promotional activity, 2) continued expansion of non-consumables from 7 percent of stores to 15 percent, 3) expansion of fresh products from 5 percent of stores to 31 percent, 4) acceleration of growth in the "slightly higher income customer" demographic group, and 5) continued momentum from store remodeling.

UBS: Benefits From Renovations And Dollar Express

Dollar General likely saw an 80 basis point benefit to comps from store renovations and the inclusion of Dollar Express Stores which it acquired in 2017, Lasser wrote in a note. The momentum is likely sustainable in the near-term as remodels and Dollar Express could contribute another 80 basis points to comps in the second quarter and another 60 basis points in each of the following two quarters.

Management's comp guidance for 2.5 percent for the full-year implies a gain of around 2 percent over the remainder of the year, the analyst wrote. This implies the potential for upside to management's current outlook, especially if Dollar General benefits from some price increases to counter the impact of certain tariffs.

Price Action

Shares of Dollar General closed Friday at $127.28.

Related Link:

Raymond James, KeyBanc Remain Dollar General Buyers After Disappointing Q4

Photo courtesy of Dollar General