On Monday, Telsey Advisory Group adjusted its price target for Dollar General (NYSE: NYSE:DG), raising it from $135.00 to $155.00 for the shares, while maintaining a Market Perform rating. The firm anticipates Dollar General will continue to show sequential improvement through the fourth quarter of 2023 and into 2024.
The adjustment reflects expectations that the return of CEO Todd Vasos and his focus on fundamental business strategies will contribute to stabilizing the company. These strategies include enhancing labor management, store execution, inventory levels, and leveraging initiatives like DG Fresh and DG Media. Although the stock has seen a significant 55% rise since Vasos's appointment, the firm believes the increase was precipitous.
Despite the positive outlook on the company's direction, the firm remains cautious due to several challenges. Dollar General is expected to face near-term pressures from reduced consumer spending, partly due to decreased SNAP payments, and from necessary investments in labor, inventory clearance, and shrink management. These factors are anticipated to persist into early 2024.
The new price target of $155 is based on a price-to-earnings (P/E) multiple of approximately 20 times, an increase from the previous multiple of around 17 times. This change in valuation multiple mirrors recent market trends and the potential for Dollar General to return to growth towards the end of 2024. The firm's earnings per share (EPS) estimate for 2024 stands at $7.79, which is above consensus.
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