Dollar General Now Worth $83/Share, Sterne Agee Says

In a report published Tuesday, Sterne Agee analysts maintained a Buy rating on

, while raising the price target from $78 to $83. While the macro environment in which Dollar General operates is improving, the company's guidance for FY15 appears conservative. The analysts added, "…the capital allocation story has many chapters with a dividend now part of the equation and a more balanced leverage/buyback campaign likely down the road." Dollar General had tested its new labor model, which yielded positive results. Now the company has decided to introduce this to a larger group of stores. This model focuses on "a more efficient SKU stocking protocol and raising the customer experience to the highest level," the analysts mentioned. "Moreover, with an additional focus to improve store standards, DG has also realigned store operations management by giving district managers fewer stores on which to focus." Dollar General's digital coupon program has been successful, with more than a million customers registering for the program and more than 35 million coupons downloaded so far. "DG will start to utilize the data it has collected to create personalized promotions for customers, which should help drive incremental traffic and larger baskets," Sterne Agee noted. Management has indicated then company's performance so far this quarter has been on track. "For the quarter, we are modeling a 3.5% increase in SSS, as the company cycles just a 1.5% comp from 1Q14," the analysts added.