Benzinga | Jan 26, 2021 02:56PM EST

Why This Dollar General Analyst Is Turning Bullish

The bullish case for Dollar General Corp. (NYSE:DG) is based on a combination of management's ability to execute on several strategic initiatives and the stock's reasonable valuation, according to Loop Capital Markets.

The Dollar General Analyst: Anthony Chukumba upgraded Dollar General from Hold to Buy with a price target lifted from $220 to $260.

The Dollar General Thesis: Dollar General is in the "early innings" of multiple strategic initiatives that will be counted on to drive improved financial performance in 2021 and beyond, Chukumba said in a Tuesday upgrade note.

The initiatives include:

1) Expansion of fresh and frozen goods to the entire chain in 2021.

2) The non-consumable initiative will increase to more than 5,600 stores by the end of the year.

3) Expansion of produce from 1,000 stores today to 1,600 in 2021.

4) Self-checkout options.

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Dollar General's stock trades at the lowest P/E to five-year expected EPS growth (PEG) ratio among its large capitalization and general merchandise value retailer peers, the analyst wrote. Specifically, the stock's current 2021 PEG ratio of 1.35 times is a discount to Dollar Tree, Inc.'s (NASDAQ:DLTR) stock at 1.86 times and Walmart Inc (NYSE:WMT) at 2.19 times.

Despite the valuation gap, Dollar General offers investors the highest projected long-term square footage and earnings growth rates among its peers, he said.

The research firm's $260 price target implies a multiple of 23.5 times on 2021 EPS and this still represents a "healthy discount" to the average valuation of its closest peers.

DG Price Action: Shares of Dollar General were trading near-flat at $206.30 at last check.

Photo: Dollar General.