Justin Sullivan
Morgan Stanley is the Dollar General Corporation (New York Stock Exchange: DG) Monday after considering the macroeconomic context.With sales and margin trends softening, the company has lowered its EPS estimate for 2023 to his $11.80 and now sees his EPS for 2024. $13.40.
Analyst Simeon Gutman also warned that the expiry of emergency SNAP benefits could mean that SNAP spending could fall by up to 20% year-on-year. He also noted that his LIFO billing for 2023 is expected to be less tailwind than originally expected.
Gutmann and the team maintained an overweight rating for DG, and the strain was considered a quality defensive bellweather.
“In particular, 2024 EPS power is likely to be stronger than other defensive (i.e., pure grocery/consumables retailers more vulnerable to Food at Home disinflation) and cyclical (given a potential recession). (low visibility of earnings), one of the most visible in our coverage.) DG street numbers are declining, but the drivers are more technical and/or macro than fundamental. Related, and these cuts seem priced in.”
DG’s valuation is about 18.5x short-term P/E, which is attractive compared to other semi-defensive retailers. The company has set a base case price target of $255, a bull case price target of $345, and a bear case PT of $18.
Dollar General (DG) shares fall 0.18% It is down 6.55% year-to-date.
