Deutsche Bank Anticipates A Beat And Raise From Dollar General

Dollar store retailers, including Dollar General Corp. DG, are on deck to report their respective earnings reports.

The Analyst

Deutsche Bank's Paul Trussell upgraded Dollar General's stock from Hold to Buy with a price target boosted from $79 to $93.

The Thesis

Dollar General's upcoming third quarter report should mark the first stage of a longer-term profit growth profile, Trussell said in a note. The company should record a same-store sales growth of at least 3 percent in the quarter and sustain a mid-2 percent-plus growth throughout 2018 and 2019. On top of that, management is likely to raise its full year fiscal 2017 earnings per share outlook.

Dollar General has various factors working in its favor, including:

• A store remodel lift and focus on perishables;
• A business model that is "resistant" to online retailers;
• A general shift in consumer preferences away from grocery stores in favor of dollar stores;
• Complementary trips with Aldi and Lidl; and
• A 6 percent square footage growth profile.

Dollar General would also benefit from a tax reform plan which could add an incremental $25 per share to the analyst's price target.

Price Action

A $93 price target implies an 18 times multiple on Trussell's fiscal 2018 EPS, which represents a multiple that is inline with the high-end of the stock's trading range and near its peers.

Shares of Dollar General gained more than 2 percent on Thursday and hit a new 52-week high of $85.11.

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