Morgan Stanley reeled in estimates on Dollar General Corporation (NYSE:DG) on Monday after factoring in the macroeconomic backdrop. Due to softening sales and margin trends, the firm cut its 2023 EPS estimate to $11.80 and now sees 2024 EPS of $13.40.
Analyst Simeon Gutman also warned that the expiration of emergency SNAP benefits means SNAP disbursements may decline ~20% year-over-year. He also noted that LIFO charge in 2023 are expected to be less of a tailwind than originally anticipated.
Gutman and team kept an Overweight rating on DG, with the stock seen as a high quality defensive bellwether.
“EPS power particularly into ’24 is among the most visible in our coverage, including relative to other defensives (ie pure grocers/consumables retailers which are more exposed to Food at Home disinflation) and cyclicals (where earnings visibility is low given a potential recession). Street numbers for DG are coming down, but the drivers are more technical and/or macro related than fundamental, and these cuts seem priced in.”
Valuation on DG is called attractive in comparison to other semi-defensive retailers at ~18.5X near-term P/E. The firm set a base case price target of $255, bull case price target of $345, and bear case PT of $18.
Shares of Dollar General (DG) fell 0.18% in premarket trading and are down 6.55% on a year-to-date basis.