A second look at Dollar General’s high valuation
Posted on November 11, 2009 at 9:44 am
Pali Research analysts Stacey Widlitz and Brandon Ross say Dollar General has earned its higher valuation over its main peers by virtue of strong execution, a better private-label program and more aggressive growth plans. They also expect strong per-share profit growth due in large part to the paying down next year of some $600 million in debt.
However — you kinda knew that was coming, no? — the Goodlettsville-based retailer’s pending IPO looks set to value the company a third higher than Family Dollar and Dollar Tree. And that is a bit much if you’re looking for more gains, say Widlitz and Ross. Seems like Dollar General has quite simply done too good a job over the past few years.
DG is highly exposed to consumables which have been a tailwind for the past two years. However, that means the company is less exposed to a turn. DG has also completed most of the “hard work” in its turnaround story… We would rather own a name … that has upside as a result of initiatives that are early in the game and should drive EPS upside in 2010.
