Raymond James analyst Bobby Griffin downgraded the stock of Dollar General Corp
The analyst said that the slashed price target reflects a lower near-term earnings outlook through margin pressure and consumer weakness.
The company reported second-quarter FY23 sales growth of 3.9% year-on-year to $9.80 billion, missing the analyst consensus of $9.92 billion.
It lowered the FY23 EPS outlook to $7.10 - $8.30 and that of sales growth to 1.3% - 3.3%.
Comp sales trends remained negative in F3Q QTD, primarily driven by lower average ticket. Customer traffic was negative during the quarter but improved sequentially, and management noted positive results from the first round of wage investments, added the analyst.
The analyst remarked that comps will remain under pressure for the remainder of the year, driven by lower average ticket.
So, the analyst reduced FY24E EPS to $8.00 from $10.90 and assumed comp sales to increase 2.0%.
While the analyst is disappointed with the recent guidance reductions, he does not think Dollar General is a permanently broken business. He adds that the cost pressures hindering earnings will eventually abate.
However, there still is the risk that performance may not have reached the bottom.
Irrespective of the earnings pressure in FY23, DG still plays a vital role in the daily/weekly shopping for a large portion of U.S. consumers.
The new Price target represents ~18x the analyst's FY25 EPS, below DG's historical forward P/E multiple of ~19-20x.
Price Action: DG shares are trading lower by 6.61% at $129.34 on the last check Friday.